Net profit due to mother fell 47.23% in '23, maintaining a “buy” rating

China Coastal Defense released its annual report. In 2023, it achieved revenue of 3,592 billion yuan (yoy -16.31%), net profit to mother of 309 million yuan (yoy -47.23%), deducting non-net profit of 239 million yuan (yoy -53.99%). Among them, Q4 achieved revenue of 1,652 million yuan (yoy -4.73%, qoq +182.49%) and net profit of 186 million yuan (yoy -47.37%, qoq +472.65%). We expect the company's 2024-2026 EPS to be 0.55, 0.72, and 0.90 yuan respectively (the previous value was 1.28 and 1.60 yuan in 2024-2025). The reason for the reduction is a change in the procurement pace of downstream customers, and demand is expected to decrease. Comparatively, the company Wind agreed to expect an average PE value of 48 times in 24, giving the company 48 times PE in 24 years, with a target price of 26.40 yuan (previous value of 31.36 yuan), maintaining a “buy” rating.

Revenue from the hydroacoustic electronic defense business continued to grow. The decline in revenue from the specialty electronics and electronic information business in 2023 was affected by factors such as market demand and price fluctuations for some products, adjustments to some product plans, and increased industry competition. At the same time, some subsidiaries experienced delays in research and production plan targets, adjustments in contract signing plans, and a decline in product gross margin. In 2023, the company's hydroacoustic electronic defense business achieved revenue of 1,303 billion yuan, a year-on-year increase of 3.34%, gross profit margin of 32.58%, a year-on-year decrease of 6.66pct; special equipment electronics achieved revenue of 989 million yuan, a year-on-year decrease of 31.09%, gross profit margin of 5.83 pct; electronic information products achieved revenue of 1,243 million yuan, a year-on-year decrease of 19.66%, gross profit margin of 22.55%, and an increase of 1.62 pct; professional technical services and other realized revenue of 0.29 million yuan, an increase of 31.06% year on year The gross profit margin was 21.57%, down 5.07pct year over year.

Taking credit impairment to reduce profits, operating cash flow declined. The company's expense ratio for the 23-year period was 21.24%, an increase of 3.85pct; of these, the sales expense ratio was 2.81%, an increase of 0.56 pct; the management expense ratio was 8.67%, an increase of 1.81 pct; and the R&D expense ratio was 10.03%, an increase of 1.76 pct. The main reason for the increase in various cost rates was due to a decrease in revenue scale. The company accrued credit impairment losses of 79.87 million yuan, which had an obvious impact on the profit side. At the end of '23, accounts receivable and notes amounted to $3,841 billion, an increase of 25.63%. In terms of cash flow, the company received 3.02 billion yuan in cash from sales of goods/provision of labor services in '23, a decrease of 31%, and net operating cash flow of 190 million yuan, a year-on-year decrease of 80.36%.

24Q1 performance continues to be under pressure, and the long-term development of underwater defense is improving

The company achieved operating income of 358 million yuan in the first quarter of '24, a year-on-year decrease of 17.97%, and realized net profit of 0.4 billion yuan, a year-on-year decrease of 74.85%, and an overall gross margin level of 43.29%, an increase of 3.93 pct over the same period last year. In '23, the company's hydroacoustic electronics business kept a close eye on platform construction needs, grasped opportunities for related product placement and replacement, and continued to maintain its dominant position in the business field. In terms of special electronics, the company actively expanded product categories and expanded many new customers. For example, the communication and navigation business opened up 4 new product markets, added 6 new customers, and entered 2 equipment fields for the first time. The company's underwater attack and defense field has been improving for a long time.

Risk warning: Product quality and production safety risks, and operation management risks caused by many subsidiaries.