Key points of investment

Incident: The company released its annual report for the year 23, with revenue of 1.42 billion yuan, an increase of 6%; net profit to mother of 220 million yuan, -39% year over year; gross profit margin of 35.8%, -3.5 pct year on year. Among them, 23Q4 revenue was 450 million yuan, +10%/+45% year on month; net profit to mother was 40 million yuan, -63%/-14% year over month, gross profit margin 24.8%, and -14.1/-15.2pct, mainly due to centralized delivery of commercial and commercial reserves at the end of the year to reduce the comprehensive gross profit margin.

Slightly reverse shipments were about 840,000 units in '23, a 10% drop, and shipments are expected to increase by 30-50% at the end of '24. The company slightly reversed sales of 842,500 units in '23, with a year-on-year gross profit margin of 36.13%, a decrease of 2.15 pct. Looking at the subregion, European shipments in '23 accounted for about 62%, North America accounted for 30%, Latin America 4%, and the others 3%. Among them, North America's share in Q4 increased significantly. Looking ahead to 24 years, we expect a slight increase in market inventory delivery in 24Q1, with a slight month-on-month increase. 24H2 demand is expected to resume high growth as inventory is removed, and we expect slight reverse shipment growth of 30-50% throughout the year 24.

23Q4 industrial and commercial reserves were delivered centrally, with a high month-on-month increase, and are expected to continue to double in 24 years. The company's industrial and commercial savings achieved a breakthrough of 0-1 in '23, with annual revenue of about 165 million yuan and a gross profit margin of 15.9%. Of these, we expect revenue of 150 million yuan in 23Q4, mainly due to concentrated revenue collection at the end of the year. 23H2 continues to “promote integrated optical storage” and carry out domestic and international standard certification and other work. Currently, the company has reserved more than 500 MWH of industrial and commercial storage projects, and the heavy project volume is expected to help the company's industrial and commercial savings continue to double in 24 years.

Shipments of switchers+communicators are growing steadily, forming a complementary ecosystem with micro-inverse. In '23, the company's switcher revenue was 160 million yuan, shipped 1.04 million units, and the gross profit margin was 38.6%. Communicator revenue in '23 was 110 million yuan, and 137,000 units were shipped, with a gross profit margin of 69.4%. The company's switchers and communicator products form a complementary and mutually supportive ecosystem. With stable product quality and excellent product performance, it enhances the ability to meet the refined and diversified needs of customers, and lays a solid foundation for business development.

23Q4 expense ratios fell sharply from month to month, inventory was still high, and cash flow from operating activities to increase sales repayment was positive.

The cost rate for the 23-year period was 17.8%, with the same increase of 9.58 pct. The sales/management/R&D expenses increased by 5.3/1.8/3.3 pct respectively. The sales expenses were mainly due to the increase in storage expenses due to large overseas inventory; the cost rate during the Q4 period was 12.2%, +1.2/-12.5 pct compared to the previous month. The decline was mainly due to Q4's high overseas revenue and exchange earnings. At the end of '23, inventory was 1.56 billion yuan (micro inversion/switch/communicator inventory of 97.4/12.6/398,000 units), +20/ -7% compared to the same period (-2/-38/ +110% year over year). The month-on-month decline was mainly due to year-end deliveries and Q4 asset impairment of 50 million yuan (mainly inventory depreciation). Net cash flow from 23Q4 operating activities was 70 million yuan, which was corrected for the first time since 22Q2.

Investment rating: Considering that the 24-year slight reversal is still in the inventory removal stage, we lowered the company's profit forecast. We expect net profit to return to mother of 3.0/4.1/51 billion yuan in 24-26 years (the value was 3.39/476 million yuan before 24-25 years), +38%/+34%/+27%, corresponding to PE 24x/18x/14x, and maintain the “gain” rating.

Risk warning: Industry demand and company shipments fall short of expectations, increased competition, etc.