Incident: In 2023, the company achieved operating income of 370 million yuan, an increase of 7.4% year on year; achieved net profit of 50 million yuan, an increase of 11.5% year on year; net profit after deducting non-return to mother was 40 million yuan, an increase of 46.6% year on year. In the fourth quarter of 2023, the company achieved revenue of 80 million yuan, a year-on-year decrease of 0.9%; realized net profit of 6.24 million yuan, an increase of 79.7% over the previous year; net profit after deducting non-return to mother was 4.66 million yuan, an increase of 292.5% over the previous year.

Profitability has improved, and R&D investment remains high. Profit side: In 2023, the company's gross sales margin/net margin was 32.9%/13.7%, up 4.3pp/0.5pp year on year; single Q4 gross margin/net margin was 39%/8.9%, respectively, +7.3/-0.4pp. Expense side: The company's 2023 sales/management (excluding R&D) /financial expense ratios were 8.2%/4.9%/-0.9%, respectively, compared to +0.5pp/ -0.4pp/+0.6pp. Among them, the increase in sales expenses was mainly due to increased marketers and additional equity incentive expenses; the increase in financial expenses was mainly due to a decrease in exchange earnings during the reporting period. The company's R&D expenditure rate in 2023 was 8.9%, an increase of 1.4pp over the previous year, and the high R&D investment stabilized its competitive advantage.

We have been deeply involved in the industrial automation industry for many years, and the profitability of all businesses has improved. In 2023, the company's general inverters/ industrial special aircraft/ servo systems achieved revenue of 2/0.5/130 million yuan, +2.7%/-29.8%/+48.3%, respectively, gross margins of 39.4%/33.6%/22.5%, respectively, increasing 5.6pp/5.9pp/4.3pp year-on-year, mainly due to a year-on-year decline in procurement prices for raw materials IC chips, IGBT modules, capacitors, etc., which led to a decrease in procurement costs, and the company's newly developed EM760 high-performance series and EM730 general-purpose series inverters This is due to iterative cost reduction of products. The downstream application fields of the company's products continue to expand, including logistics equipment, petrochemicals, air compressors, metal rolling, fan pumps, etc., and the diversified layout supports steady growth.

The energy storage business has achieved a breakthrough of 0 to 1, benefiting from the growth in downstream demand, and the volume of products is expected to be released. In 2023, the company's power supply business achieved revenue of 560,000 yuan, with a gross margin of 32.1%. The company's segment is mainly energy storage business products.

The SGE100 series micro energy storage system is mainly used in 48V DC microgrid energy storage scenarios. Currently, multiple energy storage projects are under development, including liquid flow battery controllers and M-Block energy storage systems, which are expected to bring additional performance.

The overseas industrial control business is more profitable, and the company layout is speeding up. In 2023, the company's overseas business achieved revenue of 9.4 million yuan, a year-on-year increase of 42.4%, gross margin of 44.1%, a year-on-year increase of 7.5 pp. Compared with domestic business, the overseas business was 11.6pp higher. The company set up an overseas sales department in 2023 and initially formed a small-scale team to complete small-batch and batch orders in some market-side regions, including Southeast Asia, India, the CIS, South America and other regions. The overseas industrial control market space is vast. Currently, domestic enterprises are in a period of rapid growth in overseas markets, and it is expected that both quantity and profit will increase.

Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 460 million yuan, 550 million yuan and 640 million yuan respectively, and the year-on-year growth rate of net profit to mother for the next three years will be 43.9%/28%/20.9%, respectively. The company's products are improved, integrated solutions enhance customer stickiness, and “overseas+energy storage” go hand in hand to improve the company's performance. The company was given 25 times PE in 2024, corresponding to a target price of 21.50 yuan, and maintained a “buy” rating.

Risk warning: the risk of product prices falling due to increased competition; the risk that high-performance series products account for a relatively low share; the risk of rising raw material prices; the risk of exchange rate fluctuations affecting overseas business revenue.