Core views

The company's performance in 2023 grew steadily, with operating income and net profit growing at 9.97% and 12.87%, respectively. By sector, revenue from complete equipment and quality technical services grew significantly, reaching 33.80% and 18.94% respectively. In the quality technology service business, the company built 22 new laboratories in 2023, and testing and certification capabilities continued to improve; the complete equipment business, domestic intelligent manufacturing business achieved rapid growth throughout the year; the electrical equipment business maintained steady growth; and the environmentally friendly paint and resin business. Although the company's annual production and sales increased year-on-year, revenue declined due to falling raw material prices affecting product market prices. In addition, the company's profitability increased significantly. In 2023, 2024Q1's gross margins were 30.67% and 33.58% respectively, up 2.22pct and 5.82pct year-on-year. Looking ahead to the whole year, as the high gross margin quality technology service business continues to advance base construction+qualification expansion, revenue is expected to maintain rapid growth, driving a continuous increase in profitability.

occurrences

The company released its 2023 annual report, which achieved full-year revenue of 4.173 billion yuan, a year-on-year increase of 9.97%, and net profit of 410 million yuan, an increase of 12.87% over the previous year. Looking at a single quarter, 2023Q4 achieved revenue of 1,227 billion yuan, a year-on-year decrease of 3.35%, and net profit to mother of 123 million yuan, an increase of 15.28% year-on-year.

Meanwhile, the company released a report for the first quarter of 2024. 2024Q1 achieved revenue of 875 million yuan, a year-on-year increase of 2.21%, and net profit to mother of 70 million yuan, an increase of 12.43% over the previous year.

Brief review

Revenue from complete equipment, quality and technical services grew at an impressive rate, and profitability increased steadily in 2023. The company focused on its main business and actively promoted deep expansion and collaboration among various business segments. The business scale continued to expand. The annual revenue scale reached 4.173 billion yuan, an increase of 9.97% over the previous year. By sector: ① Quality and technical service business, the company continued to promote the construction of laboratories and branches, and built 22 new laboratories in 2023. As new laboratories were gradually put into operation, the testing and certification capacity continued to improve, achieving annual revenue of 977 million yuan, an increase of 18.94%; ② Complete equipment business, domestic intelligent manufacturing business achieved new development, compounded the gradual recovery of overseas business, and annual revenue grew rapidly by 33.80% to 977 million yuan; ③ Electrical equipment business. As projects were accepted one after another, revenue increased steadily by 6.32% to 9.60 million yuan 100 million yuan. At the same time, the industrial power supply business continued to maintain a good development trend, continuing to expand the market in industries such as electrolytic hydrogen production and semiconductors; ④ In the environmentally friendly paint and resin business, the company's annual production and sales increased year-on-year, but due to falling raw material prices affecting product market price reductions, annual revenue fell 6.15% year on year to 1,198 billion yuan.

In 2023, 2024Q1 profit margins increased steadily, and expense ratio performance was relatively stable. In 2023, the company's comprehensive gross margin was 30.67%, up 2.22pct year on year; while the scale of the professional technical service industry and the special equipment manufacturing industry increased to varying degrees, the gross margin increased by 0.53 pct and 0.60 pct respectively; although the revenue of the chemical raw materials and chemical products manufacturing industry declined year on year, the gross margin increased 2.59 pct year on year under the influence of the reduction in raw material costs combined with the company's cost reduction and efficiency measures. The cost rate for the full year was 21.10%, up 1.60 pct year on year. Among them, sales, management, R&D, and finance expenses rates were 6.86%, 7.06%, 7.74%, and -0.56%, respectively. The year-on-year ratio was +0.75pct, +0.56pct, +0.16pct, and +0.12pct, respectively. The overall cost performance was relatively stable. The net profit margin for the whole year was 9.83%, an increase of 0.26pct over the previous year. Looking at 2024Q1, the company achieved a gross profit margin of 33.58%, up 5.82 pct and 3.67 pct from month to month. The profit margin improved significantly. The net profit margin was 8.02%, an increase of 0.73 pct over the previous year. Looking ahead to the whole year, the company will continue to promote base construction and qualification expansion for quality technical services for its core business. Revenue from this sector is expected to maintain rapid growth, driving an increase in overall profit margins.

Investment advice: Supported by common basic technology research, the company continues to expand in the field of electrical appliances and related derivatives, and its performance is expected to maintain steady growth. We expect the company's 2024-2026 revenue to be 47.72, 53.94, and 6.046 billion yuan, respectively, up 14.36%, 13.04%, and 12.08% year-on-year, and net profit to mother of 4.89, 5.76 billion yuan, respectively, up 19.13%, 17.99%, and 17.30% year-on-year respectively. Corresponding PE is 16.14, 13.68, and 11.66 times, respectively, maintaining the “buy” rating.

Risk warning: ① Quality control risk: The normal operation of the quality technology service business depends on the brand awareness and credibility that the company has established over the years in the field of electrical appliances. If the quality of the reports issued by the company does not meet the requirements due to improper management, illegal testing, data fraud, etc., it will damage the company's reputation and credibility, and adversely affect the company's operations. ② Technological upgrading and iteration risk: New technologies related to China's electrical appliance industry are continuously upgraded and iterated. If the company makes mistakes in judging related technology and market trends, or the market acceptance of new technologies and products falls short of expectations, it will adversely affect the company's technological innovation and industrialization capabilities, and will not help the company maintain its continuous competitiveness. ③ Risk of price fluctuations in bulk raw materials: The main raw materials in the eco-friendly paint and resin business are bulk chemical raw materials such as refined terephthalic acid, neoprene glycol, and isophthalic acid. Affected by factors such as macroeconomic fluctuations and changes in market supply and demand, the prices of bulk raw materials fluctuate by a certain margin. If the price of bulk raw materials rises sharply in the short term, it will lead to a decline in the profitability of the company's environmentally friendly coatings and resins business.