Incident: On April 26, the company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 202 million yuan, an increase of 6.22% over the previous year, realized net profit of 47.21 million yuan, a year-on-year decrease of 17.18%, and realized net profit of 41.56 million yuan without return to mother, an increase of 6.82% over the previous year. In the first quarter of 2024, the company achieved operating income of 31.43 million yuan, a year-on-year decrease of 15.7%; realized net profit of 4.49 million yuan, a year-on-year decrease of 65.54%; realized net profit withholding of 3.9 million yuan, a year-on-year decrease of 66.76%; the company disclosed its 2023 equity distribution plan, which plans to increase 4.0 shares for every 10 shares, for a total cash dividend of 19.565 million yuan.

In 2023, the company's performance grew steadily, increasing R&D and enhancing competitiveness (1) Growth analysis: In 2023, the company's revenue increased 6.22% year on year, net profit to mother decreased 17.18% year on year, and net profit without return to mother increased 6.82% year on year. 2024Q1's revenue decreased 15.7% year over year; net profit to mother decreased 65.54% year over year, and net profit after deducting non-return to mother decreased 66.76% year over year. The decrease in net profit attributable to mother was mainly due to increased R&D expenses. By product, revenue from power equipment testing and services, electricity and related services, and electrochemical equipment in 2023 was $1.29, 0.48, and 0.22 million yuan, respectively, or +3.66%, +18.68%, and -1.49%, respectively. We judge that the company's electrochemical equipment is expected to usher in rapid growth, and the new electrochemical equipment and perovskite photovoltaic business will contribute to the company's revenue growth.

(2) Profitability analysis: In 2023, the company's gross sales margin was 59.38%, +1.83 pct; net sales margin was 23.42%, -6.57pct year on year; 2024Q1 gross sales margin was 75.93%, +8.33pct year on year; net sales margin was 13.77%, -21.19pct year on year. The decline in net interest rate was mainly due to increased R&D expenses. In 2023, the company's sales/management/financial expenses rates were 12.03%/8.78%/-5.41%, respectively, with a year-on-year change of +0.18/-1.44/ -1.38pct. The sum of the three cost rates was 15.41%, -2.64pct year on year, and the cost control effect was remarkable. In 2023, the company's R&D expenses were 40.51 million yuan, a year-on-year increase of 46.08%, accounting for 20.07% of revenue. The increase in R&D expenses is mainly due to the company increasing R&D investment, expanding the R&D team, and introducing skilled R&D personnel.

(3) Analysis of operating capacity and operating cash flow: In 2023, the company's accounts receivable turnover days were 252 days, a year-on-year decrease of 28.8 days, and capital turnover efficiency improved markedly. The company's net operating cash flow improved significantly in 2023, reaching 72.41 million yuan, +256% year over year, mainly due to the recovery of prior period receivables in the current period.

Focusing on the main business of intelligent grid monitoring, 11 honorary qualifications highlight the company's strength (1) Continuously increase R&D innovation and continuously enhance the company's competitiveness. The company has a firm development strategy, grasps the development opportunities for building new power systems based on new energy sources in China, is committed to R&D, production and sales of electrical equipment sensing and early warning devices and energy storage systems, and provides power-related technical services and comprehensive solutions. In 2023, the company invested 40.51 million yuan in R&D, accounting for 20.07% of revenue, an increase of 46.08% over the previous year. The company added 11 new honorary qualifications, won important honors such as Zhejiang New Electric Power System Digital Sensing Technology Key Enterprise Research Institute, CMMI Level 5 certification in the field of global software engineering, the 48th International Invention Exhibition Gold Award, the Zhejiang Science and Technology Progress Award, the Machinery Industry Science and Technology Award, and the Qianjiang Energy Science and Technology Award, and also undertook the Zhejiang “Jianbing Lingyan+X” R&D research project, fully demonstrating the company's strength in scientific and technological innovation and transformation of achievements.

(2) Accelerate the expansion of markets outside Zhejiang Province and strive to increase market share. The company accelerated the expansion of key regional markets outside the province. In particular, the sales share in North China, Central China and South China increased significantly, reaching 36.59% of the total sales area, or +18.49% over the same period last year. Market influence is gradually expanding, and regional coverage capacity is constantly increasing.

Extend the industrial chain and actively expand new perovskite photovoltaics

(1) Differential competition between perovskite and crystal silicon, and the BIPV scene space is broad. Perovskite batteries can compete differently with crystal silicon in a wide range of BIPV scenarios with their excellent light transmission, color, and flexibility. In March 2024, the notice of the General Office of the State Council forwarding the National Development and Reform Commission and the Ministry of Housing, Urban-Rural Development's “Work Plan to Accelerate Energy Conservation and Carbon Reduction in the Construction Sector” clearly stated that it supports the application of thin-film battery technology and equipment such as perovskite in the construction field. According to estimates, the installed capacity of the BIPV market will reach 201GW in 2028. Perovskite components are lighter and have better light transmission, and it is expected that the penetration rate of perovskite batteries in the BIPV field will increase rapidly after production. Based on a penetration rate of 20%, its installed capacity can reach 40GW, and the market space is broad.

(2) Invest in the construction of a 100MW perovskite production line, and strong research and development to protect industrialization. In November 2023, the company invested in the construction of a 100MW perovskite production line. In December, the company's “Key Technology for High-efficiency New Flexible Perovskite Thin Film Photovoltaic Cell” project was approved by the 2024 “Jianbing Lingyan+X” R&D Research Plan issued by the Zhejiang Science and Technology Department.

At present, the company has set up a technical team, introduced high-end talents in the field of new photovoltaics, established a “Joint Laboratory for Key Technologies of Flexible Photovoltaics” with the Suzhou Nano Institute of the Chinese Academy of Sciences, and established close technical cooperation with senior teams from well-known universities, providing a strong guarantee for the development and industrialization of perovskite technology.

Maintain an “Overweight” rating. The company's main business of intelligent grid monitoring is steady, and it is actively laying out new energy storage and perovskite photovoltaic businesses to form full-link products covering “power generation, transmission, transformation and distribution”, which will further promote the extension and improvement of the company's industrial chain. Under the dual driving influence of national policies and markets, the new energy industry is developing rapidly, and demand is huge. Based on this, we are optimistic about the company's growth. We predict that the company's net profit from 2024 to 2026 will be 1.11, 1.63, and 209 million yuan, respectively. According to the stock price on April 26, 2024, PE will be 21, 14, and 11 times, respectively, to maintain an “increase” rating.

Risk warning: Risk of smart grid operating investment falling short of expectations; risk of energy storage business development falling short of expectations; risk of new perovskite photovoltaic projects falling short of expectations; risk of deviations in industry scale estimates; risk of untimely updates of information used in research reports, etc.