Incident: The company recently released its 2023 annual report, achieving full year revenue of 1.82 billion yuan, YoY -26.0%; net profit to mother of 370 million yuan, compared to 260 million yuan in the same period last year. The company's 2023 results are within the range of previous earnings forecasts. There are 2 main reasons for the decline in performance: 1) the company's customers are concentrated in the government, large state-owned enterprises, and special fields. Due to factors such as macroeconomic pressure and the suspension of the company's military bidding qualifications, the amount of new orders signed by the company declined; 2) acceptance of some projects was delayed, and the company's revenue declined year-on-year. In addition, the company released its 2024 quarterly report on April 25, 2024. In 24Q1, it achieved revenue of 220 million yuan, YoY -19.5%; net profit to mother of -150 million yuan, compared to -90 million yuan in the same period last year, mainly due to a decline in new orders in 23, and an increase in losses compared to 23 due to declining revenue.
Multiple factors affect the level of performance; profitability has declined. Looking at a single quarter, the company: 1) achieved revenue of 230 million yuan, 220 million yuan, YoY -78.2%, and -19.5% respectively; net profit to mother of -330 million yuan (22Q4 was 180 million yuan) and -150 million yuan (23Q1 was -90 million yuan), respectively. Affected by multiple factors such as the suspension of military bidding qualifications and delays in the timing of some inspection projects, the number of new orders signed by the company decreased, and 23Q4 and 24Q1 performance declined significantly year-on-year. 2) 4Q23 gross margin was -23.6%, compared to 46.0% for the same period last year; net margin was -144.6%, compared to 17.0% for the same period last year. The consolidated gross margin for 2023 decreased by 12.13ppt to 35.9% year-on-year, and the net margin was -20.7%, compared to 10.7% in the same period last year.
R&D investment increased 29% year over year in '23; strengthening satellite and drone business development. The company's expense ratio for the 2023 period was 56.1%, an increase of 22ppt year over year. Among them: 1) sales expense ratio was 14.5%, up 4.84ppt year on year; 2) management expense ratio was 15.3%, up 4.45ppt year on year; 3) financial expense ratio was 5.3%, up 3.70ppt year on year, mainly due to increased interest accrual on convertible bonds and interest on bank loans; 4) R&D expense ratio was 21.0%, up 9.00ppt year on year; R&D expenses were 380 million yuan, up 29.4% year on year. Since 2024, the company will continue to build the Nu Constellation, use the advantages of data resources to expand the “Belt and Road” space information service market; at the same time, improve the entire drone industry chain and full-scenario application, build a benchmark city demonstration site, and use the comprehensive advantages of drones, Beidou, and meteorology to carry out low-altitude flight support. As of the end of 4Q23, the company: 1) accounts receivable and notes of $2.08 billion, up 1.2% from the beginning of the year; 2) inventory of $1.61 billion, up 91.6% from the beginning of the year, mainly due to an increase in project implementation; 3) contract liabilities of 370 million yuan, an increase of 37.6% over the beginning of the year, mainly due to increased contract advance payments; 4) net cash flow from operating activities - $870 million, compared with 490 million yuan in the same period last year, mainly due to a large increase in employee remuneration and procurement payments.
Investment advice: The company is one of the leading enterprises in satellite remote sensing applications in China. It has now formed a development layout for the entire industry chain of data production, data analysis, and data application. Currently, due to multiple factors, the company's performance has fluctuated. In the future, as demand in data elements, satellites and other fields increases, the company's performance may gradually recover.
According to changes in the pace of downstream demand, we adjusted the company's net profit from 2024 to 2026 to be 21 million yuan, 130 million yuan, and 193 million yuan, respectively. The current stock price corresponding to 2024-2026 PE is 284x/46x/31x, and downgraded to a “careful recommendation” rating.
Risk warning: downstream demand falls short of expectations; increased market competition, etc.