2023 revenue/profit falls short of market expectations due to delayed delivery
The company announced its 2023 and 2024Q1 results: 2023 revenue of 255 million yuan (down 45% year on year), net profit attributable to the parent company of 0.35 million yuan (down 71% year on year), slightly lower than the performance report disclosed at the end of February. There is still room for delays in nuclear industry inspections, which is lower than market expectations.
2024Q1 revenue and net profit to mother are still clearly declining. We believe: 1) the company's performance fluctuated greatly in the first three quarters of previous years, and there was insufficient year-over-year/month-on-month reference; 2) the 2023Q1 industry has not been affected by deliveries and has a high base. Our specific reviews are as follows:
Delivery in the nuclear industry has been delayed, and the 2023 performance is falling. In 2023, the company's revenue for nuclear industry intelligent equipment/nuclear robotics/non-nuclear special intelligent equipment was -44%/-36%/-37%, respectively. There was a significant delay in industry commissioning & acceptance confirmation represented by post-processing. In terms of contract liabilities, it declined 25% for two consecutive years in 2022/2023, and the company plans to develop new businesses to hedge risks.
Endogenous & extended, the added value of the new business is sufficient. 1) In 2023, the company held Tianjin Jiazi (70% shares), bringing in revenue of 10 million yuan in 2023; it participated in 5% of Xi'an Nuclear Equipment's shares and went deeper into the nuclear fuel equipment industry. 2) The company is participating in product finalization for strategic areas, and the company expects to receive mass revenue after 2025. Driven by new business as a whole in 2023, the company's gross margin was +0.4ppt to 47.3%.
During the new business investment period, the cost ratio increased significantly during the period. In the early stages of new business development, personnel and R&D expenses increased significantly. In 2023, the company's sales/management/R&D expense ratio increased sharply by 2.7/10.3/6.8ppt year-on-year, and the net profit margin for the whole year was 13.6% (down 12.7ppt). Considering the rigidity of personnel costs, we think the net profit margin before 2024H2 may be at a low point.
Development trends
Nuclear power investment is at its peak, keeping abreast of the general trend of the industry. China Nuclear Power announced its 2024 investment plan, with an increase of 51.9% compared to 2023, and the nuclear power boom is on the upward channel. According to Jingye Intelligence's annual report, it is currently developing electrical penetrators for advanced nuclear power reactors and has become a supplier to CGN.
Profit forecasting and valuation
Due to delays and cost rigidity in the nuclear industry, we lowered our 2024 net profit forecast by 27% to $89 million (+155.7% YoY), and introduced a net profit forecast of $168 million for 2025 for the first time.
The current stock price is 46/24x for 2024/2025. Considering the increase in the valuation of the nuclear industry machinery sector, we lowered the target price by 10% to 42.82 yuan, corresponding to the 2024 P/E of 49x, and the corresponding room for increase of 7%, maintaining the outperforming industry rating.
risks
The risk of large fluctuations in performance in a single quarter, and the risk that the pace of nuclear industry delivery is difficult to estimate, etc.