Incident: The company released its 23 annual report and 2014 quarterly report. In 23, it achieved revenue of 1,072 million yuan, +1.1% year-on-year; realized net profit of 312 million yuan, +20.11% year-on-year. Looking at a single quarter, 23Q4 achieved revenue of 266 million yuan, +3.13% year over month, and -10.66% month on month; realized net profit of 99 million yuan, +55.24% year over year, and +34.49% month on month. 24Q1 achieved revenue of 248 million yuan, +12.89% year over month, and -6.8% month on month; realized net profit of 43 million yuan, -23.13% year on year and -56.49% month on month.

The steady growth in the company's performance in '23 was mainly due to factors such as an increase in gross margin. In '23, the company achieved revenue of 1,072 billion yuan, +1.1% year-on-year. By business, revenue for mechanical sensors and instruments was +1.2% to $663 million; revenue for industrial IoT and system integration was -0.89% to $314 million; other physical sensor series achieved revenue of $13 million; and revenue for platform-based product series was -1.1% to $14 million. In terms of gross margin, the consolidated gross margin was +2.81pct to 43.05% year-on-year in '23, compounded by increases in net income from investment and net income from changes in fair value. The company's net profit to mother in '23 was +20.11% year-on-year to 312 million yuan.

Investment in R&D continued to increase, and the cost rate increased slightly year-on-year during the period. Sales/management/R&D/finance expense rates for 23 years were 5.1%/6.9%/9.13%/1.52%, respectively, with year-on-year changes of -0.3 pct/-0.16 pct/+1.12 pct/+0.54pct. Among them, the year-on-year increase in R&D expenses was mainly due to an increase in the company's R&D projects.

Focus on research and development related to the fusion of robot sensors and multiple physical sensors to create new quality productivity. 24H1 will accelerate the digital six-dimensional force sensor project jointly developed with its subsidiary on the basis of analog six-dimensional force sensors that have already been tested in the early stages; the company will build a multi-physical fusion sensor technology platform to develop system integration projects using multiple physical quantity sensor scenarios.

Investment advice: We expect the company to achieve net profit of 36/46/550 million yuan in 24-26, respectively, and the corresponding PE is 23/19/16 times, respectively. First coverage with a “Highly Recommended” rating.

Risk warning: risk of downstream demand fluctuations, multi-dimensional force sensor development progress falling short of expectations, risk of investment in mergers and acquisitions