Incident: On April 28, 2024, Dayuan Pump Industry released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved total revenue of 1,889 million yuan (YoY +11.98%), net profit attributable to mother of 285 million yuan (YoY +9.45%), and net profit of non-attributable net profit of 278 million yuan (YoY +9.16%).

Looking at a single quarter, 2023Q4 achieved total revenue of 462 million yuan (-9.00% YoY), net profit to mother of 36 million yuan (-60.19% YoY), and net profit not attributable to mother of 35 million yuan (-61.63% YoY).

2024Q1 achieved total revenue of 277 million yuan (-23.51% YoY), net profit attributable to mother of 41 million yuan (YoY -32.23%), and net profit not attributable to mother of 39 million yuan (-3.35% YoY).

In 2023, the revenue of chemical shielded pumps was high, and export sales grew faster. 1) By product, the revenue of the company's hot water circulation shielding pump/small submersible electric pump/chemical shielding pump/land pump/submersible electric pump for well use was 8.57/3.21/2.00/1.98/177 million yuan, respectively, +14.91/-0.70/+42.27/ +23.39/ -0.86%, respectively. Among them, the revenue of chemical shielding pumps increased significantly year-on-year or overall market demand increased, which in turn led to an increase in order volume. 2) By region, the company's domestic and overseas revenue in 2023 was 1200 billion yuan (+9.75% year over year) and 639 million yuan (+17.51% year over year), respectively. Overseas sales increased relatively much year-on-year, mainly due to an increase in the number of shielded pumps exported.

2024Q1 gross margin improved year on year, and increased cost-side investment is beneficial to long-term business development. 1) Gross profit margin: 2023Q4/2024Q1 gross margin was 29.52/ 35.91%, respectively, -3.36/+2.90pct year on year; 2024Q1 gross margin increased year on year or due to continuous optimization of product structure; 2) Net profit margin: 2023Q4/2024Q1 The company's net interest rate was 7.36/ 14.21%, respectively, -10.58/2.29pct, a significant year-on-year decline or increase in cost-side investment. 3) Expense side: 2023Q4 and 2024Q1 sales/management/ R&D/ finance cost rates were 8.27/4.14/5.45/ -0.70% and 5.76/7.15/7.39/ -0.55%, respectively, compared with +3.53/+0.70/+1.42/+0.19pct and +1.50/+1.54/+2.05/-0.55pct, respectively. The sales, management, and R&D cost rates have all increased, or are beneficial to the company's long-term development.

The basic sector business continues to be consolidated, and product sales continue to rise. The company's basic business segment is mainly divided into four major areas: 1) the civil pump sector, domestic year-on-year recovery in 2023, and overseas sales revenue declined slightly year-on-year due to strong dollar interest rates, with sales revenue of major products being about 650 million yuan; 2) In the household shielding pump sector, sales revenue of major products in 2023 was about 770 million yuan, up more than 15% year on year. Among them, various types of energy-saving pump products sold more than 1.14 million units, and the number of products sold in the heat pump supporting field exceeded 280,000 units; 3) The industrial shielding pump sector benefited from improved product performance and rich product matrices. Accelerated, continuing the strong growth trend. The sales revenue of major products in 2023 was about 300 million yuan, with a year-on-year increase of more than 41%, of which products in the chemical sector increased by more than 50%; 4) Liquid cooling pump sector: continuous product technology updates and iteration, and sales revenue of major products in 2023 was about 50 million yuan. Main companies actively invested in R&D, driven by further development in the fields of energy storage and liquid cooling in data rooms.

Investment suggestions: Industry side: As a traditional industry, agricultural pumps are expected to maintain a rapid growth trend; along with the gradual recovery of the social economy, the new energy-saving pump industry is expected to continue to grow; the industrial shielded pump market prospects are quite promising. Company side: As an industry leader that may share the dividends of the pump industry's recovery, industrial shielded pumps are expected to continue to improve rapidly. The company continues to expand product and downstream application markets, and revenue performance is expected to continue to grow. We expect the company's net profit to be 3.20/305/392 million yuan in 2024-2026, the corresponding EPS is 1.92/2.13/2.35 yuan, and the PE corresponding to the current stock price is 11.37/10.24/9.28 times, maintaining a “buy” rating.

Risk warning: Increased market competition, fluctuating raw material prices, management risks due to rapid expansion of scale, political and policy risks in product export destination countries, etc.