Company events: Recently, the company released its 2023 annual report and 2024Q1 performance report. In 2023, it achieved revenue of 493 million yuan/ +27.49%; net profit to mother was 94.4732 million yuan/ +40.56%. In 2024Q1, we achieved revenue of 106 million yuan/ +12.58%, and net profit of 16.2898 million yuan/ +74.65% to mother.

The company's profitability is improved, the cost side is effectively controlled, and high R&D investment enhances core competitiveness.

In terms of profitability, the company's comprehensive gross margin in 2023 was 51.47%, up 3.39 pcts year on year; of these, the gross profit margin of the main business was 51.49%, up 3.23 pct year on year; the weighted average ROE reached 10.88%, up 1.91 pct year on year, and the company's profitability increased significantly. On the cost side, the company's sales expenses, management expenses, and R&D expenses for the full year of 2023 were 75.444 million yuan (accounting for 15.21% of revenue)/31.1922 million yuan (6.32%)/61.9861 million yuan (12.56%), respectively, and the cost remained relatively stable. The company continues to build digital construction, improve the productivity and efficiency levels of various departments through AI technology, reduce operating costs, and enhance the company's market competitiveness and profitability. The company continued to invest heavily in R&D, with a year-on-year increase of 11.72%. During the reporting period, it completed the cloud platform strategic architecture and launched a series of edge computing nodes with AI acceleration capabilities. The company continues to increase its dividend payout ratio. The 2023 profit distribution plan's dividend payout rate reached 13.32%, up 2.86pct from 2022. The company continues to increase dividends to give back to shareholders, and the value is expected to continue to stand out.

Industrial Internet of Things and smart grid businesses are improving marginally, and the revenue-generating capacity of in-vehicle gateways is expected to increase.

The company's five major business segments are integrated and developed to form a business pattern with key coverage+balanced development, and the product matrix continues to be enriched. Specifically, Industrial IoT Communications achieved revenue of 284 million yuan/+ 25.14%, released a variety of new products and achieved mass production during the reporting period, covering a wider range of application markets. It can meet the high, medium and low demand levels of industry users and more complex and diverse industrial application scenarios, and promoted a steady increase in revenue for this product. The smart distribution grid achieved revenue of 127 million yuan/ +58.15%. The main reason is that orders that were delayed in the previous period have all been fulfilled in the current period, and sales increased significantly in the current period. Smart commerce achieved revenue of 5217.85 (down 10.31% year on year), mainly due to the impact of the current market economy sentiment and a reduction in market demand. Vehicle networking gateways generate tens of millions of dollars in revenue and are expected to open up new market space. The company's launch of new products such as in-vehicle gateways and computing platforms for intelligent transportation in Europe has greatly enriched the company's product matrix and covered a wider range of application scenarios at home and abroad. Overall, the company's industrial basic market sales increased steadily, and the rich product application matrix helped the performance exceed expectations.

New industrialization continues to advance, overseas business orders have broken through, and business performance is expected to improve marginally.

China's industrial policy has begun a new journey of promoting a new type of industrialization. The industrial Internet has been given higher expectations and is expected to enter a new stage of large-scale application. The company's intelligent edge computing gateway, IWOS and other products strongly promote the digital upgrading of the industry, and domestic demand is expected to continue to rise. The company's overseas market expansion is strong, achieving annual revenue of 179 million yuan, accounting for 36.20%. The share is expected to increase. The company's new in-vehicle gateway and Xinghan Cloud management network solutions have been sold in batches in North America, Europe and other markets, and the return on investment in overseas products is expected to continue to increase.

Investment advice: We are optimistic about the company's medium- to long-term performance growth space. Based on the company's latest performance, we gave the company a net profit forecast of 126 million yuan, 171 million yuan, and 228 million yuan for 2024-2026, corresponding EPS of 1.71 yuan, 2.32 yuan, and 3.09 yuan, corresponding PE of 18.82 times, 13.86 times, and 10.40 times, maintaining the “recommended” rating.

Risk warning: the risk of new technology development and promotion falling short of expectations, the risk of increased market and product competition, and the risk of domestic and foreign policy uncertainty.