Announcement summary: The company released its 2024 quarterly report, and achieved revenue of 3.391 billion yuan during the reporting period, an increase of 34 billion yuan over the previous year.

44%, net profit to mother was 590 million yuan, up 18.19% year on year, net profit after deducting 586 million yuan, up 20.31% year on year.

Net profit reached a record high for the same period, and the business structure affected short-term gross profit margin. The company's rapid revenue growth in Q1 mainly benefited from the year-on-year increase in automation and information technology business revenue, with a gross profit margin of 32.68%, a year-on-year decrease of 7.58pct. We expect it to be mainly affected by the revenue structure. As the scale of the product expands and the share of high-end products increases, gross margin will gradually improve. The cost rate for the period was 13.66%, down 5.53pct year on year. Expense management and control optimization, sales/management/R&D expense ratios were 1.86%/2.87%/9.45% respectively, down 0.36/1.38/3.44pct year on year, net profit margin 17.38%, down 2.96pct year on year. Net operating cash flow was $470 million, up 24.58% year over year. We believe that the company will continue to enhance its core functions, enhance its core competitiveness, accelerate the layout of strategic emerging industries such as industrial software and artificial intelligence, continue to break through in fields such as autonomy and control and “stuck neck” problems, build a solid digital foundation for new industrialization, enhance commercialization and platformization capabilities through strategic transformation, maintain steady growth in its main business indicators, and the scale of performance is expected to benefit from the accelerated expansion of new industrialization opportunities.

PLC R&D promotion progressed smoothly, and contracted customers continued to expand. The company has an autonomous controllable medium and large PLC as the core, and has a full-stack domestic chemical control software and hardware product matrix. Domestic industrial automation has accelerated in recent years, and the overall market share of domestic brands has increased, but there is still plenty of room for replacement in medium and large PLC segments. Baoxin Software has successfully developed large-scale PLC products, becoming the third company in the world after Siemens and Rockwell and the first domestic company to have all independent intellectual property rights for large-scale PLC hardware, runtime and configuration software, creating a solid digital base for new industrialization. Combined with Baowu Group providing R&D and verification support for products, the market competitiveness is expected to expand further. According to the company's official website, the 1550 cold-rolling turnkey project was signed with Guangxi Hongwang in March 2024. The project will use Baoxin Software's latest full-stack localized PLC products and a new automated digital industrial site DSF overall solution. It is expected to be officially put into operation in March 2025, with a design capacity of 1.5 million tons/year, and the contract amount is about 700 million tons/year. Subsequent plans will form a scale of 10 million tons/year; it is expected that the industrial automation company Gangdi Technology will be used to accelerate its deep industry experience in the port and lifting machinery field Expansion of the company's high-performance open PLC applications.

Turing robots are combined, and robotics+AI+industrial software are building new growth momentum. The company improved its robot business capabilities in all aspects, built a Baoluo demonstration production line for related application scenarios in 2023, promoted large-scale robot access to the Baoluo Cloud platform. The BOO and RaaS models were implemented at multiple steel bases, and the first R&D application work such as inspection robot dogs and mobile temperature measurement and sampling robots in front of the furnace progressed smoothly. It increased capital to hold Turing Robotics to strengthen its industrial competitiveness in the field of high-end industrial robots. Since January 24, it has been merged. The Turing subsidiary RRR is located in Italy and is one of the earliest companies in the world to develop robots with high-end heavy-duty robot products. As a core product, Turing recently exhibited its latest industrial robot technology and solutions at the 2024 Hanover Industrial Fair, which is conducive to expanding the European market. Its full range of products have passed CR, CE, EAC and KCS certifications to meet the high safety and application standards of the European market. In addition, the company will actively carry out research on the application of AI models in the steel industry, create production-level AI application demonstration projects, and promote research on the application of humanoid robots in the steel industry.

Investment advice: Baoxin Software is a leading domestic steel information technology company and a leading smart manufacturing enterprise. It helps transform and upgrade the Chinese manufacturing industry, maintain a high boom in software informatization, and expand the large-scale PLC market. Relying on Baowu Group's scarce resource advantages and its own informatization capabilities, it rapidly developed the IDC business and became a leader in third-party data centers. Actively laying out the direction of industrial robots, AI, etc., is expected to open up a new growth curve. We expect the company's net profit for 2024-2026 to be 3.146 billion yuan/4.103 billion yuan/5.168 billion yuan, and EPS will be 1.31 yuan/1.71 yuan/2.15 yuan respectively, maintaining a “buy” rating.

Risk warning: Information technology investment and construction in the steel industry falls short of expectations; technology iteration falls short of expectations; IDC delivery and listing progress falls short of expectations; risk that research information is not updated in a timely manner.