Incidents. Realized revenue/net profit to mother/ net profit after deduction of 29.28/0.97/167 billion yuan in 2023, +37.87%/-53.29%/-14.35% YoY; 23Q4 revenue/net profit to mother/ net profit after deduction of 12.54/0.36/0.96, +40.45%/-63.12%/-0.13% YoY. According to the results announced in the 2024 Quarterly Report, 24Q1 achieved revenue/net profit to mother/ net profit after deduction of 4.38/0.09/0.08 billion yuan, +17.37%/-31.82%/-21.74% year-on-year.

Continuing to be deeply involved in the power industry, it is expected that the experience of grafting into the mature power grid industry will re-create four more Xianheng. The company's revenue in 2023 was 2,928 billion yuan, +37.87% year-on-year. By industry, the company's electricity/four strategic industries/e-commerce increased 33%/61%/295% year-on-year respectively to 17.62/6.34/198 million yuan in 2023. The company continues to deeply cultivate the power industry and increase the first-level e-commerce bid rate; the oil and gas sector actively introduces external talents, focusing on developing central state-owned enterprises such as national pipelines; the emergency sector will usher in a better opportunity for development with the introduction of trillion special treasury bonds in 8 fields including post-disaster recovery and reconstruction in October 2023. 2024Q1's revenue was $438 million, up 17.37% year over year.

Gross margins from expanding into new fields are temporarily under pressure. In 2023, the company's net profit to mother/net profit after deduction was RMB 0.97/ 167 million yuan, or -53.29%/-14.35% compared with the same period. The restoration of trust accrued losses and share payments of RMB 36 million. The company's net profit to mother in 2023 was RMB 203 million, which remained stable year-on-year. In 2023, the company's gross margin/net margin was 32.18%/3.70%, respectively, -7.38/ -6.58pct. The decline in gross margin was mainly due to the company's active expansion of new fields, poor understanding of new fields, and a relatively high share of standard products. 2023 single Q4 gross profit margin of 35.55%/3.63%, -8.57/8.14pct year-on-year. The gross margin of electricity/other products in 2023 was 34.69%/28.34%, compared to -7.82/-6.11pct. We judge that the main reason for the decline in gross margin in the power industry was that the company won bids for first-class electronic brand package standards, which dragged down the overall gross profit margin. Revenue from other industries grew rapidly, and was still in the early stages of development, selling mostly standard products. The company's sales/management/R&D/finance expense ratio in 2023 was 12.18%/8.98%/1.71%/-0.18%, -0.55/-1.26/ -0.48/+0.07pct compared to -0.55/-1.26/ -0.48/+0.07pct. The decline in the cost ratio was mainly due to the rapid rise in the company's revenue. In terms of cash flow, net operating cash flow in '23 was 287 million yuan, an increase of 33.42% year-on-year, mainly due to increased customer payments due to increased operating income. In 2023, the company paid a cash dividend of 1.50 yuan for every 10 shares, for a total dividend of 62 million yuan. 2024Q1 net profit attributable to mother/net profit after deduction was 0.09/08 billion yuan, -31.82%/-21.74% year on year, gross margin/net margin was 26.75%/1.82%, respectively, -7.39/ -1.73 pct year on year, mainly affected by the expansion of new fields. 2024Q1's sales/management/R&D/finance rate was 14.85%/10.31%/2.42%-0.72%, compared with -3.06/-1.78/+0.34/ -0.29pct. The increase in R&D expenses was mainly due to the increase in the company's investment in R&D of non-standard products entering new fields. In terms of cash flow, 24Q1 net operating cash flow was -131 million yuan, a year-on-year decrease of 150.70%. We judge that this was mainly due to the settlement of supplier accounts after the Spring Festival.

Investment advice: The company continues to be deeply involved in the power grid field, expand horizontally and adopt the “Four Legions” strategy. At the same time, taking advantage of online procurement by central enterprises, the country's central enterprises are expected to increase steadily in revenue. In the future, as the company deepens its understanding of new fields of expansion, the proportion of non-standard products will drive an increase in gross margin. In addition, the company is speeding up the pace of advancement in the field of robotics and creating an image as a service provider for high-tech products. The estimated net profit for 24-26 will be 2.772/3.44/431 million yuan, respectively. The corresponding PE is 20X/16X/13X, maintaining the “recommended” rating.

Risk warning: The increase in online penetration falls short of expectations; the risk of government procurement spending being reduced.