Event: The company released its 2023 annual report and the first quarter report of 2024. For the full year of '23, the company achieved revenue of 1.12 billion yuan, a year-on-year decrease of 1.9%; net profit to mother was 0.7 billion yuan, an increase of 7.7% over the previous year. In Q1 '24, revenue was 170 million yuan, a year-on-year decrease of 1.2%; net profit to mother was 6.221 million yuan, a year-on-year reduction in losses. After considering share payments, the performance grew in line with expectations.

Performance has grown steadily, and there has been a remarkable increase in on-hand orders. Relying on existing business competitiveness and vigorous promotion of new products in 23 years, the company maintained stable performance in all downstream fields. Excluding the impact of the 23-year employee shareholding plan and equity incentive expenses, the company achieved net profit of 90 million yuan to mother for the full year of '23, an increase of 29.7% over the previous year, which is in line with our previous expectations. In terms of expenses and profit margins, the company's four comprehensive expenses in '23 was 34%, up 3.1 pp year on year; gross margin was 40%, the same year on year; and the net interest rate was 5.7%, the same year on year. As of 24Q1, the company had on-hand orders of about 840 million yuan, a year-on-year increase of 31.3%, laying the foundation for achieving business goals in 24 years.

Railway investment is expanding, focusing on equipment upgrades and 5G-R implementation. In March, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”. Railway equipment has the characteristics of large stocks and high frequency of use. It is an intersection of large-scale equipment renewal and logistics cost reduction. In the first quarter of 2024, railways across the country completed fixed asset investment of 124.8 billion yuan, an increase of 9.9% over the previous year. Compared with this, the year-on-year growth rate in Q1 in '22 was only 3.1%. Railway investment expanded rapidly and rose marginally. On the 5G-R side of railways, since the Ministry of Industry and Information Technology approved the 5G-R band in October 23, high-speed and general speed line testing work has accelerated. The company has completed the research and development of products and solutions related to command and dispatch based on 5G-R, and has passed the static test review of China Railway Group's 5G-R system, which is expected to double the space for the company after construction.

The civil aviation management business broadens the product line and focuses on the company's digital intelligence business opportunities in various fields. The company is a completely independent domestic supplier in the field of civil aviation in China. The company established a subsidiary Jiaxun Intelligent Aviation Technology in 2023 to focus on civil aviation management. It will continue to expand products in this field, which is expected to bring the company a second growth curve. Furthermore, in terms of AI, the company launched the railway vision capability platform “Feihong Security Platform” and the first large-scale model product for the railway industry in China, which has already been tested and commercialized in the railway and customs fields. In terms of data elements, the company invested in Hangzhou Yuwei Information Technology, a representative manufacturer of privacy computing, to build an industrialized chain from data collection to data application, and promote the commercial application of data security technology in more scenarios such as transportation, security, and energy. In terms of commercial cooperation, the company signed a “Comprehensive Cooperation Agreement” with Huawei, which will carry out comprehensive strategic ecological cooperation for vertical industries such as railways, urban rail transit, and civil aviation, and has already implemented projects worth more than 10 million yuan at home and abroad. In terms of military informatization, the company is one of the main suppliers of communication equipment for our military's military communication networks. It has a high share in the industry and will benefit from the growing demand for military informatization.

Profit forecasting and investment advice. EPS is expected to be 0.21 yuan, 0.27 yuan, and 0.34 yuan respectively in 2024-2026, and corresponding dynamic PE will be 28 times, 22 times, and 18 times, respectively. Railway network updates are being accelerated, and demand for intelligent upgrading of dispatching numbers is improving. PE is given 40 times in 24 years, corresponding to a target price of 8.4 yuan, maintaining a “buy” rating.

Risk warning: Risks such as railway investment falling short of expectations, and the company's new product development and promotion falling short of expectations.