Incident: Recently, the company released its 2023 annual report, achieving annual revenue of 1.93 billion yuan, YoY -29.2%; net profit to mother - 550 million yuan, compared to 66 million yuan in 2022. On April 26, the company released its 2024 quarterly report. 1Q24 achieved revenue of 340 million yuan, YoY +60.8%; net profit to mother was -08 billion yuan, 1Q23 was -70 billion yuan, and the loss margin narrowed. The performance was in line with market expectations. The company's core business continues to achieve breakthroughs in product layout, but the volume of business orders has declined, and at the same time, impairment losses have affected profits.
The 4Q23 results turned into losses year over year; the calculation of impairment losses affected profits. 1) Looking at a single quarter: In 4Q23, the company achieved revenue of 850 million yuan, YoY -32.0%; net profit to mother - 4.7 billion yuan, 4Q22 was 120 million yuan. In 1Q24, the company's revenue increased 61% year over year; profit side losses, but both year over year and month over month, the magnitude narrowed.
2) Profitability: In 2023, the company's gross margin decreased by 1.1 ppt to 18.4% year on year; net margin decreased by 31.1 ppt to -28.6% year on year. In 2023, the company accrued impairment losses totaling 480 million yuan, affecting net profit attributable to mother.
Radar and ancillary products contributed 42% of revenue in '23; gross margin increased. By product, 2023:1) Radar and equipment: revenue of 8.1 million yuan, YoY -24.9%, accounting for 42% of total revenue, mainly weather radar, air traffic control radar, low-altitude surveillance radar, new-system radar, printed circuit board and microwave component products. Gross margin increased by 1.1 ppt to 30.3% year over year. 2) Public safety products: Revenue of 690 million yuan, YoY -31.9%, accounting for 36% of total revenue, mainly products such as security, civil defense informatization, and food informatization. Gross margin decreased by 5.85ppt to 4.0% year over year. 3) Power products: Revenue of 350 million yuan, YoY -31.0%, accounting for 18% of total revenue, mainly Huayao electronic products. Gross margin increased 4.12ppt to 20.4% year over year. 4) Mobile support equipment:
Revenue of 70 million yuan, YoY -38.6%, accounting for 4% of total revenue, mainly products such as Bowei Changan special vehicle modification. Gross margin decreased by 17.34ppt to 7.5% year over year.
Continuously improve the R&D technology system and increase related investment. The cost ratio increased 5.3ppt to 21.3% year over year in 2023:1) the sales expense ratio increased 1.5ppt to 5.7% year over year; 2) the management expense ratio increased 4.2ppt to 12.9% year over year; 3) the financial expense ratio was 1.0%, compared to 2.0% in the same period last year; 4) the R&D expense ratio increased 0.5ppt to 1.6% year over year. By the end of 1Q24, the company: 1) accounts receivable and notes of $2.14 billion, up 4.2% from the beginning of the year; 2) prepayments of $0.5 billion, a decrease of 33.4% from the beginning of the year; 3) inventory of $1.32 billion, up 5.1% from the beginning of the year; 4) contract liabilities were $140 million, a decrease of 51.8% from the beginning of the year. Net cash flow from operating activities in 2023 was $110 million, YoY -8.2%.
Investment advice: The company focuses on the three major sectors of perception products (industry side), perception foundation (enterprise side), and perception application (government side), actively incubates new industries centered on the low-altitude economy, and has mature product lines and rich market resources. In 2023, the company undertook the construction of X-band weather radar in the Meteorological Administration's “14th Five-Year Plan” radar project and the first batch of S-band phased array weather radar application test systems for pilot research and development missions to further expand meteorological radar. We expect the company's net profit from 2024 to 2026 to be RMB 0.17 million, RMB 52 million, and RMB 109 million respectively. The current stock price corresponds to 2024-2026 PE of 309x/101x/48x respectively. We maintain a “careful recommendation” rating considering the company's business advantages and layout in new industries such as the low-altitude economy.
Risk warning: New product development risks, production line construction falling short of expectations, downstream demand falling short of expectations, etc.