Net profit to mother increased 48% year over year in '23, and orders increased dramatically. The company achieved operating income of 1,029 billion yuan (+35.0% YoY) and net profit to mother of 86.68 million yuan (+48.0% YoY) in 2023. The increase in revenue performance was mainly due to the increase in the company's slag removal system, low temperature flue gas recovery orders, and expansion of the steel slag business. Overall gross margin remained stable. The net operating cash flow in '23 was 140,000 yuan, mainly due to the company's vigorous expansion of business, corresponding to accounts receivable of 610 million yuan at the end of '23 (an increase of 200 million yuan over the previous year). 24Q1 achieved net profit of 6.3 million yuan (+500% year over year).

Low-temperature flue gas recycling volume and price benefits have risen sharply, and the traditional slag business is growing steadily. In 2023, the company's dry and wet slag removal systems achieved a total revenue of 484 million yuan (+19.4% year over year), and the overall gross profit margin remained stable at 35.8%. The volume and price of the company's low temperature flue gas recovery system rose sharply (40 units sold +25% year over year, but revenue +100% year over year), and gross margin also increased by 6.94 pct to 28.6%, making it the main contributor. The steel slag business achieved zero order breakthroughs, achieved revenue of 91.87 million yuan, and gross margin of 40.4%. The company has entered the supply chain of the five major power groups and has channel advantages. In the future, it will benefit from accelerated investment in thermal power infrastructure, and is optimistic that related orders will grow beyond expectations.

We are optimistic about flexible transformation and increasing prosperity, and look forward to the volume of denitrification orders at full capacity. In '23, the company's full-load denitrification system achieved sales revenue of 128 million yuan (-25% year-on-year), which matched the decline in order sales. We are still optimistic about the company's full-load denitrification business order volume. Thermal power is on the left side of the whole society's cost adjustment. The Development and Reform Commission Energy Bureau issued the “Guiding Opinions on Strengthening Power Grid Peak Shifting Energy Storage and Intelligent Scheduling Capacity Building” in January, making it clear that the 2027 thermal power flexibility transformation should be completely revised. We are optimistic about the company's business advantages in denitrification transformation, and look forward to freeing up space in the spiritual reform market.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 1.18/16/213 million yuan, respectively, and the corresponding PE is 18.44/13.19/10.20 times. The company's business has advantages such as large demand space and rapid release. It gives 25 times PE in 2024, corresponding to a reasonable value of 23.92 yuan/share, and maintains a “buy” rating.

Risk warning. Product development falls short of expectations; risk of technology leakage and iteration; policy changes, etc.