Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 2,414 billion yuan, a year-on-year decrease of 10.51%, achieved net profit of 218 million yuan, an increase of 29.03% over the previous year, and realized net profit after deducting non-return to mother of 208 million yuan, an increase of 31.13% over the previous year. In the first quarter of 2024, the company achieved operating income of 358 million yuan, a year-on-year decrease of 16.12%; realized net profit of 34.35 million yuan, an increase of 1.84% over the previous year; realized net profit deducted from mother of 30.77 million yuan, an increase of 2.40% over the previous year; the company disclosed the 2023 annual profit distribution plan and distributed a cash dividend of 1.50 yuan for every 10 shares.

Gross profit margin and net margin reached record highs, and cash flow performance was excellent

(1) Growth analysis: In 2023, the company's revenue decreased 10.51% year on year, net profit to mother increased 29.03% year on year, net profit after deducting non-return to mother increased 31.13% year on year. 2024Q1's revenue decreased 16.12% year over year; net profit to mother increased 1.84% year over year, and net profit after deducting non-return to mother increased 2.40% year over year. The company's various operating indicators are steady, moderate and positive. Focusing on the “one profit and five rate” requirement for high-quality development, efforts have been made to do key tasks such as reducing costs and increasing efficiency, “two funds” pressure control, and debt reduction, etc., and asset quality and profitability have steadily improved.

(2) Profitability analysis: In 2023, the company's gross sales margin was 24.74%, +4.02pct; the net sales margin was 9.29%, +2.68pct; the 2024Q1 gross sales margin was 26.71%, +3.16pct; the net sales margin was 9.21%, +1.34pct year on year. In 2023, the company's sales/management/ financial expenses rates were 0.95%/6.31%/-0.62%, respectively, with a year-on-year change of +0.01/+0.24/+0.05pct. The sum of the three cost rates was 6.64%, +0.29pct year-on-year. The absolute value of all three fees declined to varying degrees, but due to the decline in revenue, the various expenses were not effectively diluted. In 2023, the company's R&D expenses were 134 million yuan, up 17.45% year on year, accounting for 5.55% of revenue. The increase in R&D expenses was mainly due to the company's increased investment in R&D.

(3) Operating cash flow: Net operating cash flow in 2023 was 433 million yuan, an increase of 227.63% over the previous year, with excellent cash flow.

Benefiting from industrial policies, the company's market share is expected to increase further

In terms of grain and oil: Since the 14th Five-Year Plan, national and local governments have introduced a series of institutional policies on grain and oil processing, grain storage and logistics. Under policy guidance, there is still room for upgrading the grain and oil processing and warehousing industry.

The “National Modern Facility Agriculture Construction Plan (2023-2030)” was issued in June 2023. It is proposed to focus on building 35,000 storage and preservation facilities to make up for shortcomings in drying facilities and equipment in grain production areas, and the drying capacity of grain production areas will reach 65%; by 2030, a total of 60,000 storage and preservation facilities will be built, and the renovation and upgrading of a number of old food drying centers (points) will continue to be completed. In terms of cold chain logistics: The policy is clear that by 2025, it will focus on building 250 cold chain distribution centers to achieve storage capacity of more than 10 million tons of new production area cold chain logistics facilities; by 2030, a total of 500 cold chain distribution centers will be built, driving a total storage capacity of more than 44 million tons of new production area cold chain logistics facilities across the country. The company has significant technical and brand advantages, and its market share is expected to increase further in the future.

New orders are stable, which guarantees a high increase in subsequent performance

In 2023, the company signed a new contract amount of 3,965 billion yuan, an increase of 0.53% over the previous year. By industry, the amount of new contracts signed for the grain and oil processing industry was 3.339 billion yuan, an increase of 5.22% over the previous year; the amount of new contracts signed for the cold chain logistics industry was 595 million yuan, a decrease of 20.84% over the previous year. By product category, the new contract amount for the delivery of mechanical and electrical engineering systems was 2.198 billion yuan, an increase of 1.09%; the amount of new design consulting business contracts was 760 million yuan, a decrease of 7.02% over the previous year; and the amount of newly signed equipment manufacturing business contracts was 648 million yuan, an increase of 1.89% over the previous year. The company's new orders are stable, laying a good foundation for subsequent high performance growth.

Maintain an “Overweight” rating. Benefiting from food security strategies and equipment renewal requirements, the company's market share and orders are expected to continue to grow with significant technology and brand advantages. Considering that the company's revenue and performance growth in 2023 fell short of our previous expectations and the slight year-on-year increase in new orders in 2023, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is 2.64, 3.18, and 359 million yuan (the previous value was 4.46 million yuan and 513 million yuan), respectively. According to the stock price on April 26, 2024, PE is 20, 16, and 14 times, respectively, to maintain the “increase” rating.

Risk warning: Risk of declining profitability due to increased competition in the industry; risk of failure in scientific and technological innovation; risk of technology research and development not achieving expected results; risk of not updating the information data used in research reports in a timely manner.