Incidents:

The company published its 2023 annual report and 2024 quarterly report. In 2023, we achieved operating income of 378 million yuan, a year-on-year increase of 3.03%, net profit of 88 million yuan, a year-on-year decrease of 27.94%, and net profit after deducting non-return to mother of 85 million yuan, a year-on-year decrease of 27.72%. 2024Q1 achieved operating income of 104 million yuan, an increase of 45.16% year on year, net profit to mother of 0.27 million yuan, an increase of 165.70% year on year, and net profit after deducting non-return to mother of 0.27 million yuan, an increase of 176.87% year on year.

The business continued to perform excellently, and disruptive factors gradually subsided. Previously, based on the principle of prudence, the company re-analyzed the revenue recognition conditions for some sales contracts. Due to reasons such as delayed delivery of some of the clients' own projects and imperfect acceptance procedures, etc., the company adjusted some of its main business revenue in 2023 accordingly, which led to a decline in the 2023 results. Net profit to the mother was revised down from the previous forecast of 14.97% -43.71% year-on-year to a year-on-year decline of 27.94% in the annual report announcement. However, some orders that were confirmed late were gradually fulfilled in the first quarter of '24, and net profit returned to mother in 24Q1 showed excellent performance.

Therefore, it can be shown that the company's actual business conditions continue to perform excellently. The lower than expected performance in 23 years was only due to chance factors. At the same time, the company's contract debt at the end of 24Q1 was 23 million yuan, a significant increase over the same period last year of 15 million yuan, indicating a good order growth trend in 2024.

Profits are gradually picking up. The company's gross margin in 2023 was 65.47%, down 2.07pct, net profit margin 23.20%, and 9.97pct. Among them, the main reason for the large decline in net interest rate was that upfront costs affected profitability due to delays in revenue recognition, and the second was an increase in R&D and sales expenses. The sales/management/R&D/finance expense ratio increased by 3.23/0.49/1.43/0.05 pct year-on-year. Meanwhile, overall profitability gradually picked up in 24Q1. Gross margin also increased 1.79 pct to 67.27%, and net margin also increased 11.87 pcts to 26.19%.

Domestic substitution is accelerating, and the six-dimensional layout is expected to create a new growth pole. As domestic manufacturers represented by the company continue to make breakthroughs, the domestic structural mechanical performance testing instrument market is expected to accelerate domestic replacement. At the same time, the company is promoting the development and trial production of six-dimensional torque sensors. The goals are crosstalk < 2% FS, nonlinearity < 0.5% FS, and delay < 0.5% FS. The product is expected to be applied to fields such as robotics, scientific research, automated inspection, etc. As enterprises represented by the company accelerate their layout, it is expected that domestic replacement will be accelerated in the future, fully benefiting from the humanoid robot industry.

Profit forecast: As a leading domestic structural mechanical performance testing instrument company, the company is expected to develop more downstream fields in the future and further enhance its market position, relying on the layout of torque sensors and other products. We expect the company to achieve net profit of 173/2.28/ 294 million yuan in 2024-2026, corresponding PE 32/24/19 times. The 2024 profit was estimated at 37 times PE, and the target price was 46.4 yuan, maintaining the “buy” rating.

Risk warning: Downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.