Key points of investment
In 2023, the company's revenue increased 14.8% year on year, and gross sales margin increased 0.9 pct year on year. The industrial and safety business entered the output period, and revenue increased 63.48% year on year; businesses such as automotive, medical, and ultrasonic gas meters grew significantly. The company attaches importance to shareholder returns, and the proposed cash dividend ratio will reach 45.37% in '23.
Revenue achieved steady growth. Net profit to mother declined year on year due to various reasons. The company achieved operating income of 692 million yuan, an increase of 14.8% year on year. The same rapid increase in revenue was mainly due to the rapid development and optimization of the business structure of emerging businesses such as industry, safety, automobiles, and ultrasonic gas meters. In 2023, the company achieved net profit of 133 million yuan, a year-on-year decrease of 8.8%, and realized net profit withheld from non-mother of 128 million yuan, a year-on-year decrease of 8.8%. The year-on-year decline in net profit due to the year-on-year decline in various expenses due to the company's layout of future sustainable business, including (1) R&D expenses increased 46.07% year on year to strengthen R&D investment for new products; (2) sales expenses increased 32.09% year on year due to increased domestic and foreign advertising, travel expenses and exhibition expenses; (3) the increase in labor and depreciation investment and equity payment expenses generated by equity incentives due to the company's 23 year increase in management expenses. (4) The reduction in interest income and exchange income from the company's fund-raising accounts. Financial expenses increased 38.42% year over year. In 2023, the company achieved a gross sales margin of 45.14%, an increase of 0.9 pct over the previous year; achieved a net sales margin of 19.53%.
The 23Q4 single-quarter company achieved operating income of 240 million yuan, a year-on-year increase of 16.86%, a year-on-year net profit of 30.9%, a year-on-year increase of 6.4%, a year-on-year increase of 45.93%, a year-on-year increase of 0.63 pct, and a month-on-month increase of 3.03 pct; the net profit margin on sales was 13.62%, with varying degrees of decline from month to month.
Emerging businesses are developing rapidly, and the company's revenue structure continues to be optimized
In 2023, the company continues to strongly support the development of emerging businesses. Among them, the industrial and safety business has already entered the production period, and the medical, automotive and ultrasonic gas meter businesses have also grown rapidly. Looking at the full year of 2023 by business segment:
Industrial and safety business: Sales revenue from the industrial and safety business, which mainly focuses on miniature infrared sensors and dust particle sensors, increased 63.48% year-on-year. Among them, the safety and environmental protection business contributed greatly, and the refrigerant and gas leak monitoring business was also progressing steadily.
Automotive electronics business: Sales revenue from the automotive electronics business, which mainly focuses on automotive comfort system sensors and high-temperature gas sensors, increased 36.72% year over year. In 2023, the company entered the supply chain system of many well-known automobile groups. The total fixed amount of additional sensor projects for automotive comfort systems exceeded 1.4 billion yuan, and car seat ventilation fan products entered the batch supply stage. In 2023, more than one million front-mounted engine emission sensors were sold, and the engine nitrogen and oxygen sensor front-assembly project is expected to be put on the market in batches in 2024. Power battery thermal loss monitoring sensors have been shortlisted among car companies and leading battery companies, and the project is expected to be mass-produced one after another.
Healthcare business: The sales revenue of the healthcare business, which mainly focuses on ultrasonic oxygen sensors, increased 68.51% year-on-year, and the medical health sensor product line around the respiratory system is expected to be further enriched.
Ultrasonic gas meter and module business: Sales revenue of the smart metering business, which mainly focuses on ultrasonic gas meters and their modules, increased by 114.98% year on year. By the end of 2023, it had an annual production capacity of 1 million ultrasonic gas sensors and 1 million ultrasonic gas meters.
Scientific instrument business: Sales revenue of the scientific instrument business, which mainly focuses on environmental monitoring, increased 25.51% year-on-year. In addition to consolidating its existing advantages in the field of environmental monitoring, the company is also actively developing markets related to carbon measurement, such as greenhouse gas analyzers.
The company's emerging business developed rapidly in 2023. Although the sales revenue of the HVAC business, which mainly focuses on civilian air quality gas sensors, fell 25.90% year-on-year in 2023, we expect that along with the optimization of the company's product structure, the impact of the decline in traditional business will be further reduced.
Accelerate business expansion through mergers and acquisitions and international layout
The company strategically invested in the gas alarm company Sichuan Hilde through a capital increase in December 2023. We expect the two sides to cooperate deeply in product research and development, resource sharing, etc. In overseas markets, the company established the Hungarian Quartet in Hungary through its wholly-owned subsidiary Hong Kong Quartet to invest in the construction of overseas production bases to provide localized production and supply of gas sensors to the company's European customer base. In 2023, the company's foreign revenue will account for about 25%. We expect that as the company's international layout deepens, the company will further open up overseas markets.
The company continues to maintain a high cash dividend ratio and values shareholder returns in 2023. The company plans to transfer 4.3 shares for every 10 shares in capital reserve to all shareholders, and distribute a cash dividend of 8.6 yuan (tax included) for every 10 shares. By the end of 2023, the total share capital of the company was 70 million shares. Based on this, the total proposed cash dividend was 60.2 million yuan (tax included), with a cash dividend ratio of 45.37% in 2023. The company has long attached importance to shareholder returns, and we expect the company to maintain a high cash dividend ratio in the future.
Expense rates remain manageable for a long time
The company's sales, management and R&D expenses in 2023 were 8.3%, 5.7%, and 11.9%, respectively, up 1.1 pct, 1.4 pct and 2.5 pct year-on-year. We judge that the increase in the company's cost rate in 2023 is mainly due to the company's preliminary preparations for the development and promotion of new products. Over the long term, the company's expense ratio remains generally manageable.
Profit forecasting and valuation
We forecast that the company's net profit for 24-26 will be 2.0, 2.8 billion yuan, and 370 million yuan, respectively. The corresponding PE multiples for 24-26 will be 17, 12, and 9 times, respectively, maintaining a “buy” rating.
Increased risk
Emerging business expansion fell short of expectations; demand recovery in the civilian air quality sensor market fell short of expectations, etc.