The company announced its 2023 annual report and 2024 quarterly report: 1) In 2023, it achieved revenue of 1,244 billion yuan, an increase of 30.56%; net profit to mother of 34 million yuan, an increase of -42.86%; after deduction, it was 27 million yuan, an increase of 32.82%. 2) 2024Q1 achieved revenue of 323 million yuan, a year-on-year increase of -5.94%; net profit to mother of 0.27 million yuan, a year-on-year increase of 221.03%; after deduction, it was 0.27 million yuan, an increase of 251.42% year-on-year.

Prices rose sharply in 2023, and the performance significantly exceeded expectations after adding impairment losses in the lithium battery sector. According to the company's 2023 annual report, gas meter production was 6.0685 million units, up 41.21% year on year; sales volume was 5.092 million units, up 24.77% year on year; instrument business revenue was 1,233 billion yuan, up 30.46% year on year; gross margin was 30.41%, up 0.56 percentage points year on year, and product prices rose sharply. The asset impairment loss was -027 million yuan, mainly due to the company's investment loss in Jiangxi Saiku New Materials Co., Ltd. If the impairment losses were added back, net profit deducted from the mother (20 million yuan) in 2022 would increase by more than 200%, and the main business significantly exceeded market expectations.

Net profit for the first quarter of 2024 has leveled off for the whole of 2023, and cash outflows are expected to continue to grow at a high rate throughout the year. According to the company's quarterly report, the first quarter of 2024 achieved revenue of 323 million yuan, a year-on-year increase of -5.94%; net profit to mother of 0.27 million yuan, an increase of 221.03% over the previous year; after deduction, it was 27 million yuan, an increase of 251.42% year-on-year. Net profit after deducting 2024Q1 was the same as for the full year of 2023, and it is worth noting that the 2024Q1 company's cash for purchasing goods and receiving labor payments was 220 million yuan, an increase of 52.78% over the same period last year (144 million yuan in the same period last year). In the absence of significant fluctuations in raw material prices, a sharp increase in cash expenses to purchase goods and receive labor means that there are plenty of orders in hand, and it is expected to continue to grow at a high rate throughout the year.

Profit forecast: Considering: 1) Industry development: new infrastructure construction+digital gas+digital water, broad space; 2) competitive pattern: on the demand side, downstream gas meters are mainly gas operators, with concentrated downstream and strong voice; on the supply side, the competitive landscape of the industry is scattered, and channel competition is becoming increasingly intense; 3) The company is a leading smart gas meter and system service provider that has been deeply involved in the industry for 20 years. We expect the company to receive 0.53, 0.64, 0.79 yuan for EPS in 2024-2026, respectively. The company covered 30 times PE in 2024 for the first time, giving it a “buy” rating.

Risk warning: Sales fell short of expectations, increased competition led to lower prices and gross margins, higher costs, etc.