The company released its 2023 annual report and 2024 quarterly report. In 2023, the company's revenue was 3.197 billion yuan, yoy +5.06%, net profit to mother of 461 million yuan, yoy +28.73%, net profit of 453 million yuan, yoy +26.47%, gross profit margin of 54.19%, yoy+3.82pct, net profit of 14.63%, yoy+2.82pct; 2023Q4, revenue of 1.50 billion yuan, yoy +76.6%, net profit to mother 160 million yuan, yoy +110.2% net profit net profit 162 million yuan, yoy +170.7%, gross profit margin 48.4%, yoy-17.8pct, net profit margin 14.0%, yoy+2.1pct. 2024Q1, the company's revenue is 644 million yuan, yoy +5.4%, net profit to mother is 85 million yuan, yoy -1.2%, net profit after deducting non-return to mother is 86 million yuan, yoy +2.8%, gross profit margin 53.2%, yoy-3.9 pct, net profit margin 13.1%, yoy-1.1 pct.

2024Q1 is growing steadily. The company's revenue achieved steady growth, and gross margin and net margin declined to a certain extent year-on-year. We expect this is related to changes in the business structure.

2023Q4 benefited from significant improvements in the engineering business and professional lighting business, which achieved high growth. In 2023, according to main product classification: explosion-proof products achieved revenue of 2,602 billion yuan, professional lighting and other products achieved revenue of 321 million yuan, and project revenue of 274 million yuan. According to the division of domestic and foreign trade: domestic trade achieved sales revenue of 2.5 billion yuan, of which security intelligent products achieved revenue of 210 million yuan; foreign trade department achieved revenue of 700 million yuan. The company's engineering business and professional lighting business may be the main driving force for the company to achieve high growth in 2023Q4.

The explosion-proof electrical business achieved steady growth, and the security intelligence business expanded. In 2023, the company's explosion-proof electrical business achieved revenue of 2,485 billion yuan, yoy +14.29%, gross profit margin of 57.64%, yoy+0.63pct. Explosion-proof electrical equipment is mainly used in places with flammable and explosive gases such as petroleum, chemicals, coal mines, natural gas, grain, oil, liquor, etc. Any product quality problem may cause serious production safety accidents, threatening the personal safety of operators and the property safety of related enterprises. Therefore, adhering to the “quality first” of products has always been the foundation for the company's development. The company's explosion-proof industry has expanded from traditional oil and gas and chemicals to industries such as grain, oil and medicine (liquor), military nuclear power, and intelligent safety and control, and the application fields continue to expand. In 2023, the company's self-developed “SCS Safety Intelligent Control System” with completely independent intellectual property rights achieved sales revenue of 210 million yuan. The company is also the first and so far the only explosion-proof electrical appliance company in China to achieve mass export.

The global explosion-proof electrical industry is growing steadily, and the company is actively expanding into new fields. According to data from the Federal Institute of Physics (PTB), the global explosion-proof electrical appliance market exceeded 5 billion US dollars in 2019. It is estimated that by 2025, the global explosion-proof appliance market will reach 8 billion US dollars, with a compound annual growth rate of 8%. At the same time, with the increase in public safety awareness and the strengthening of government safety supervision, the explosion-proof industry has expanded from traditional oil, gas, and chemicals to industries such as grain, oil, medicine (liquor), military nuclear power, and intelligent safety control, etc., and the application fields continue to expand.

Investment advice: Considering the company's competitiveness in the field of explosion-proof electricity, we expect the company's net profit to be 5.24/6.05/706 million yuan in 2024 to 2026, respectively, and the corresponding PE is 15x/13x/11x, respectively, maintaining the “recommended” rating.

Risk warning: the risk of downstream demand slowing down, the risk of raw material price fluctuations.