Event Overview:
1) Recently, Rena Intelligence released the “2023 Annual Report”. In 2023, the company achieved operating income of 432 million yuan, a year-on-year decrease of 33.35%; net profit to mother was 67 million yuan, a year-on-year decrease of 66.59%; net profit after deduction of 50 million yuan, a year-on-year decrease of 69.55%.
2) Recently, the company released the “Report for the First Quarter of 2024”. The company achieved operating income of 289.617 million yuan, a year-on-year decrease of 13.68%; net profit to mother was -9.0225 million yuan, a year-on-year decrease of 233.33%; net profit after deducting non-return to mother was -146.305 million yuan, a year-on-year decrease of 1257.56%.
The reduction in orders combined with continued investment caused short-term pressure on 2023 results. According to the annual report, there are several main reasons for the short-term pressure on the company's performance in 2023. On the revenue side, due to the decline in orders, the company's revenue declined by a certain margin. Among them, orders for several of the company's main products, ultrasonic heat meters, intelligent modular heat exchange units, and intelligent IoT balance valves, all declined to varying degrees, leading to a decline in product sales, which in turn affected revenue. On the profit side, in 2023, the company continued to carry out technological innovation, increase R&D investment, and increase R&D expenses; at the same time, the company introduced a large number of project delivery personnel in accordance with the 2023 business plan, leading to a significant increase in wages and expenses in 2023, and a sharp decline in profits; in addition, the company's foreign public welfare donations had a certain impact on the 2023 annual profit.
In 2023, the company will insist on independent research and development of core technology and strive to build a multi-professional complex development system required for industrial intelligence around the three major R&D centers of energy efficiency, heat and cold metering, and smart software for heating systems. As of December 31, 2023, the company has obtained 346 authorized patents, including 71 invention patents, 210 utility model patents, 65 design patents, and 163 software copyrights.
The major trend of industry intelligence remains unchanged. This year, it may benefit from policies driven by policies as new technologies such as the Internet of Things, big data, and AI fully enter the heating field. However, the entire industry is in the initial development stage of smart heating, and the penetration rate of intelligent solutions is still very low. Combining the heating industry with automation, information technology, artificial intelligence, etc., using emerging technologies to replace traditional models, promote the upgrading and transformation of the heating industry, and achieve sustainable smart heating has become an inevitable trend.
On March 27, 2024, the Ministry of Housing and Construction issued the “Implementation Plan for Promoting the Renewal of Construction and Municipal Infrastructure Equipment”, which encourages the renewal of heating facilities and equipment, and requires the upgrading of coal-fired boilers that have exceeded their service life, that do not meet the energy efficiency level or level 2 standards for industrial boilers, and that do not meet the flue gas emissions standards in accordance with relevant national standards. Focus on eliminating coal-fired boilers of 35 steam tons/hour or less, and prioritize conversion to various heat pump units. Actively promote the transformation of heat metering, and update and install equipment such as metering devices in accordance with the requirements relating to heat metering. We believe that relevant national policies are expected to drive demand in the smart heating industry and drive company-related business and order restoration. According to the annual report, in 2024, on the basis of adhering to the EPC+EMC business model, the company will further optimize the market mix strategy, consolidate and deepen the business layout in existing markets to ensure steady growth in these markets; at the same time, make full use of accumulated software and hardware product advantages, heating industry data and management practices, further focus resources to develop provincial capitals, and rely on the benchmark position and demonstration effect of the provincial capital city market to achieve leapfrog development of the business.
Investment advice:
As a leading one-stop urban smart heating overall solution provider in China, Rena Intelligence may benefit from relevant national policies in the short term, and is expected to continue to develop along with the trend of digital and intelligent transformation in the heating industry in the long term. The company is expected to achieve operating income of 492/585/681 million yuan from 2024 to 2026, and net profit to mother of 1.03/1.18/123 million yuan, respectively.
Maintaining the buy-A investment rating, the 6-month target price is 19.22 yuan, which is equivalent to a dynamic price-earnings ratio of 25 times in 2024.
Risk warning:
The promotion of the renovation of old neighborhoods and the addition of heating areas fell short of expectations. The specific implementation of the “double carbon” policy in the heating industry fell short of expectations, and the company's development of new product software systems fell short of expectations.