Incident: On April 22, the company released its 2023 annual report, achieving annual revenue of 3.56 billion yuan, YoY +34.5%; net profit to mother of 500 million yuan, YoY +58.2%. At the same time, the 2024 quarterly report was released. 1Q24 achieved revenue of 1.01 billion yuan, YoY +27.5%; net profit to mother of 130 million yuan, YoY +57.6%. The performance was in line with market expectations. Revenue from the two main businesses, infrared thermal imaging and microwave radio frequency, has maintained steady growth.
Profitability has increased; on-hand orders of $1.54 billion. 1) Looking at a single quarter: In 4Q23, the company achieved revenue of 90 billion yuan, a year-on-year decrease of 4.2% and a 2.1% month-on-month increase; net profit to mother of 110 million yuan, a year-on-year decrease of 16.9%; and deducted non-net profit of 90 million yuan, an increase of 2.7% year-on-year. 2) Profitability: In 2023, gross margin increased 3.4ppt to 50.0% year over year; net margin increased 1.0ppt to 11.9% year over year. On April 8, the company announced that it currently has an order of 1.54 billion yuan, and downstream demand is full.
Infrared thermal imaging continues to grow at a high rate; demand for accurate guidance projects is good. In 2023, by product: 1) Infrared thermal imaging revenue was 3.01 billion yuan, YoY +34.6%, gross margin increased 3.34ppt to 53.80% year over year; 2) Microwave radio frequency revenue was 400 million yuan, YoY +15.8%, and gross margin increased 3.99ppt to 28.74% year over year.
By region: 1) Domestic revenue of 2.06 billion yuan, YoY +61.5%, accounting for 58% of total revenue, gross margin increased 5.33ppt to 47.45% year over year; 2) Overseas revenue of 1.42 billion yuan, YoY +6.8%, accounting for 40% of total revenue, gross margin increased 3.15ppt to 54.71% year over year. In the field of domestic special equipment, many of the company's delayed projects have been successfully delivered and delivered one after another; several new precision guidance projects have been successfully converted and are in batch delivery, with good demand; some vehicle and gondola projects have entered the mass production preparation stage; products such as infrared and laser distance measurement modules have cooperated with customers to participate in multiple individual and accurate guidance project bids, progressing smoothly, and it is expected that they will provide new support for the company's growth in the future. On the overseas side, the company explores the global outdoor sports, industrial temperature measurement and security vision markets.
Equity incentives cost 210 million yuan; fee amortization affects the fee rate during the period. The company's expense ratio increased by 2.8ppt to 37.2% year on year in 2023:1) the sales expense ratio increased by 0.3ppt to 6.0% year on year; 2) the management expense ratio increased by 2.2ppt to 11.0% year on year; 3) the financial expense ratio was 1.0%, compared to -0.3% in the same period last year; 4) the R&D expense ratio decreased by 1.1 ppt to 19.2% year on year. As of the end of 1Q24, the company: 1) accounts receivable and notes were $1.54 billion, up 13.6% from the beginning of the year; 2) prepayments of $130 million, up 12.7% from the beginning of the year; 3) inventory of $1.61 billion, up 3.5% from the beginning of the year; 4) contract liabilities were $180 million, up 28.6% from the beginning of the year. Net cash flow from operating activities in 2023 was $490 million, YoY -1.9%. In 2023, the company confirmed the share payment fee of 210 million yuan.
Investment advice: The company is a national-level specialist and new “little giant”, laying out the entire infrared industry chain. In 2021, business categories were expanded in the microwave field through holding Wuxi Huazue; the 2024 employee stock ownership plan aims to promote the long-term, sustainable and healthy development of the company. Considering the improvement in the company's downstream demand and expansion layout in the field of accurate guidance, we expect the company's net profit to be 672 million yuan, 908 million yuan, and 1,223 billion yuan respectively from 2024 to 2026. The current stock price corresponding to 2024 to 2026 PE is 20x/14x/11x, respectively. We maintain the “Recommended” rating, taking into account the company's development space and technical barriers.
Risk warning: Downstream demand growth falls short of expectations; new product development falls short of expectations, etc.