Brief performance review
On the evening of April 22, the company released its 2023 annual report. During the reporting period, the company achieved operating income of 3.18 billion yuan (yoy -7.8%), net profit attributable to mother of 323 million yuan (yoy 13.92%), deducted 388 million yuan (yoy 7.27%), and net cash flow from operating activities of 273 million yuan, compared to -12 billion yuan for the same period last year.
Management analysis
The increase in operating cash flow exceeded expectations. A quick look at the improvement in the company's operations through the three tables. During the reporting period, the company's net operating cash flow was 273 million yuan, compared to -12 billion yuan in the same period last year. Among them, Q4 achieved net operating cash flow of 602 million yuan, second only to the highest level in history of 626 million yuan in the fourth quarter of 2018. In addition, contract liabilities amounted to 800 million yuan (yoy +37%) and accounts receivable of 905 million yuan (yoy -18.5%). It is expected that improvements in CF and BS will be reflected on the IS side one after another.
Personnel adjustments implement cost-side optimization, and the 24-year profit table is expected to show initial results. At the end of the reporting period, the number of employees in the company dropped 15% year over year to 5986. Among them, the number of R&D personnel over the age of 30 was hardly adjusted, with a year-on-year decrease of only 3.17% to 520.
Three types of impairment affect the profit side, all of which are short-term factors. PPP's “long-term receivables” bad debt provision was 77 million yuan, an increase of 66 million yuan over the previous year; “other non-current assets” bad debt provision was 105 million yuan, an increase of 19 million yuan over the previous year. Credit impairment was $0.7 billion, an increase of $55 million over the previous year. The impairment of goodwill was 68 million yuan, a year-on-year decrease of 0.7 billion yuan, and the remaining book goodwill was 226 million yuan. The impact of goodwill on the company's income statement is expected to gradually weaken.
Gross profit margins have increased, and product and business structure upgrades have begun to show results. During the reporting period, the company achieved a gross profit margin of 41.26%, an increase of 3.94 pcts over the previous year. Among them, the gross margin business “instruments, related software and consumables” increased by 4.76 pcts to 45.73%, and the share of revenue increased by 1.57 pcts to 69.75%; the share of “environmental treatment equipment and engineering” in the low gross margin business decreased by 3.02 pcts to 12.51%, and gross margin increased by 6.42 pcts to 22.74%.
R&D drives growth, and the product matrix continues to be rich. During the reporting period, the company took the lead in applying for an ultra-high resolution electrostatic ion trap Fourier transform mass spectrometer for the 2023 national key research and development program, completed the development of the first quadrupole high-resolution time-of-flight mass spectrometer in China, and won the bid for the China Meteorological Administration's “Unveiled” technology project (2023).
Profit Forecasts, Valuations, and Ratings
We expect the company's 2024/2025/2026 EPS to be 0.49/0.78/1.05 yuan, and the current price of the company's stock corresponds to a PE valuation of 22/14/10 times, maintaining a “buy” rating.
Risk warning
Industrialization progress falls short of expectations, increased market competition, risk of core component imports, lower demand for downstream applications than expected, impairment of goodwill, risk of PPP impairment, etc.