24Q1 revenue and profit declined month-on-month. Net profit after deducting non-return to mother increased slightly by 2024Q1's revenue of 644 million yuan (yoy +5.42%, qoq -44.02%), net profit to mother of 85 million yuan (yoy -1.22%, qoq -46.77%), net profit after deducting non-attributable net profit of 86 million yuan (yoy +2.83%, qoq -46.80%). We expect net profit attributable to mother for 2024-2026 to be 5.51/659 million yuan, respectively, corresponding to 14/12/10 times PE. Comparatively, the company's 24-year Wind unanimously expected the average PE value to be 16 times, giving the company 16 times PE in 24 years, corresponding to a target price of 26.08 yuan (previous value 24.45 yuan), maintaining a “buy” rating.

Affected by the off-season in the explosion-proof electrical appliance industry and EPC revenue confirmation, the company's 24Q1 revenue and profit fell a lot month-on-month, mainly due to: 1) the low season for the explosion-proof electrical appliance industry; 2) the company's new energy EPC business closing pace depends on the progress of the project. The main new energy EPC project 23Q4 began construction and confirmed revenue, but the 24Q1 Spring Festival factors and low temperatures in the northern region led to a decrease in revenue confirmation. The net cash flow from the company's operating activities in 24Q1 was -0.7 billion yuan, which changed from positive to negative over the previous year, mainly due to an increase in the company's cash for purchasing goods and receiving labor payments.

By the end of 24Q1, the company's contract debt was 82 million yuan, a decrease of 20.61% compared to the end of 23; the 24Q1 company's inventory rose slightly, reaching 761 million yuan, an increase of 8.83% over the end of 23.

Affected by factors such as business structure, the company's 24Q1 gross margin increased month-on-month but decreased by 53.22% year-on-year, -3.85pp, and +4.79pp month-on-month; net profit margin 13.13%, year-on-year -1.11pp, and -0.90pp month-on-month. The 24Q1 sales/management/R&D/finance expense ratio was 28.24%/5.92%/5.34%/-0.40%, -2.77pp/ -0.06pp/ -0.51pp/-0.39pp. The total rate for the period was 39.10%, +6.63pp/+2.01pp/+2.91 pp/ -0.35pp, year-on-month, -3.72pp, and +11.20% month-on-month. Since the company uses a business developer model for explosion-proof product sales, the sales expense ratio is high. The new energy EPC business uses direct sales methods, the sales cost ratio is low, and the gross margin is also low. Based on the year-on-month fluctuations in the company's 24Q1 sales expense ratio and gross margin, we believe that the revenue share of the company's 24Q1 new energy business increased year-on-year, but declined month-on-month.

Optimistic about the company's transformation into an intelligent safety and engineering service provider. The international strategy opens up space for growth. The company's transformation from a traditional product manufacturer to a safety intelligence integrated service provider, has determined the “digitalization” and “internationalization” strategic line, 1) Angong Intelligence: The company launched the “SCS Security Intelligent Control Platform” product, and recently appeared frequently at exhibitions such as CIPPE Beijing Petroleum Exhibition and Shandong International Chemical Industry Expo, and is expected to reach more cooperation with downstream customers. At the same time, the company's security intelligence model project is already in the implementation stage and is expected to be delivered in mid-'24. 2) Foreign trade: In 2023, the company has set up operation centers in Southeast Asia, Central Asia and Europe. It can not only serve customers closely and undertake sales functions, but also find suitable resources and establish joint ventures to localize international business. In the future, the company will accelerate the layout of overseas business, break through related business barriers, and improve the ability to obtain orders.

Risk warning: The increase in overseas market share falls short of expectations, the expansion of new fields falls short of expectations, and exchange rate fluctuations.