Recently, Tsinghua Hefei Institute, Yunnan Huofeng, and Dahua Co., Ltd. signed a strategic cooperation agreement, which is conducive to promoting the deep integration of “industry, education, research and use”.

Dahua Co., Ltd. released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved revenue of 32.218 billion yuan, +5.41% year over year; net profit to mother of 7.362 billion yuan, +216.73% year over year; net profit after deduction of 2,962 billion yuan, +87.39% year on year. With 2024Q1, the company achieved revenue of 6.181 billion yuan, +2.75% year over year; net profit to mother was 561 million yuan, +13.26% year over year, net profit after deducting 501 million yuan, or +25.92% year over year.

The company's innovative business and software business achieved rapid growth. In 2023, the company achieved revenue of 32.28 billion yuan, +5.41% year-on-year. By product, smart IoT products and solutions achieved revenue of 26.645 billion yuan, +5.79% year over year, of which the software business achieved revenue of 1,797 billion yuan, +21.59% year over year. Innovative businesses including machine vision and mobile robots, smart living, thermal imaging, automotive electronics, smart security, smart fire protection, and storage media achieved revenue of 4.907 billion yuan, +19.20%, and other businesses achieved revenue of 667 million yuan, or -47.13% year over year. As the company disposed of 7.88% of its shares in Zero Run Technology in 2023Q4, the company's net profit to mother increased by 4.137 billion yuan.

The company's gross margin increased significantly in 2023, and the expense ratio was relatively stable. In 2023, the company's gross margin reached 42.04%, up 4.17pct from 2022; the company's sales expenses ratio, management expense ratio, and R&D expenses ratio were 16.43% (y-0.31pct), 3.90% (+0.16pct), and 12.31% (y-0.39pct), respectively, which remained stable.

The company released the Xinghan Big Model to continuously improve scenario-based AI capabilities. In 2023, the company upgraded its scene AI capability system, penetrated the customer's production management process, and provided rich artificial intelligence scenario-based application solutions.

At the same time, the company released the Xinghan model, using the multi-modal visual analysis capabilities of the big model to upgrade visual perception, continuously improve the accuracy of visual analysis, increase the supply capacity for long-tail demand, form an intelligent industry solution based on the visual multi-modal large model, and further enhance the level of intelligence in the industry's business.

Investment advice: We expect the company's revenue for 2024-2026 to be 358.43 billion yuan, 399.58 billion yuan, and 44.781 billion yuan, respectively, and net profit to mother of 39.69 billion yuan, 47.01 billion yuan, and 5.573 billion yuan respectively. The company is a leading global provider of smart IoT solutions, and AI technology is expected to continue to empower the company's various businesses and maintain a “buy” rating.

Risk warning: AI technology development falls short of expectations; downstream demand falls short of expectations; industry competition intensifies.