Incidents:
Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, we achieved operating income of 3,529 billion yuan, a year-on-year increase of 20.72%, net profit to mother of 344 million yuan, an increase of 22.74% year-on-year, and net profit after deducting non-return to mother of 316 million yuan, an increase of 24.25% over the previous year. Among them, 2023Q4 achieved revenue of 1,457 billion yuan, a year-on-year increase of 1.31%, net profit to mother of 134 million yuan, a year-on-year decrease of 18.14%, and net profit after deducting non-return to mother of 129 million yuan, a year-on-year decrease of 17.86%. 2024Q1 achieved revenue of 746 million yuan, an increase of 41.36% year on year, net profit to mother of 62 million yuan, an increase of 146.93% year on year, and net profit after deducting non-return to mother of 54 million yuan, an increase of 169.65% year on year.
Revenue grew steadily, and temperature control for computer rooms and energy storage contributed steadily. As a leading domestic provider of precision temperature control and energy saving solutions and products, the company closely grasps downstream demand and actively provides equipment cooling solutions for cloud computing data centers, computing power equipment and other fields. In 2023, the company's computer room temperature control/cabinet temperature control/bus air conditioning/rail transit train air conditioning and service achieved revenue of 16.40/14.65/0.92/106 million yuan, +13.83%/+33.00%/-24.97% over the same period last year. Among them, computer room temperature control and cabinet temperature control contributed mainly to the increase. The temperature control and growth of computer room temperature control mainly affected by seasonality throughout the year. The acceptance confirmation of some major projects was completed in the fourth quarter. The annual revenue was low and high, and the rapid growth in cabinet temperature control was mainly due to continuous growth in energy storage-related businesses. Driven by the AI model, computing power equipment's cooling requirements are constantly increasing, and liquid cooling technology is expected to accelerate penetration. The company has launched Coolinside liquid cooling cabinets and full-chain liquid cooling solutions for computing power equipment and data centers. The “end-to-end, full-chain” platform-based layout has become an important core competitive advantage of the company in the liquid cooling business.
Profitability was outstanding. In 2023, the overall gross margin was +2.54 pct to 32.35%. Among them, the gross margin for computer room temperature control/cabinet temperature control was +6.03/-0.14 pct to 31.53%/32.16% year on year. The company's gross margin increased mainly due to a series of cost reduction and efficiency measures and favorable changes in the product revenue mix during the reporting period. Coupled with favorable factors such as relatively stable raw material costs, the overall gross margin increased. The slight decline in the gross margin of the cabinet temperature control business was mainly due to the intensification of market competition in the industry. In terms of cost ratio, in 2023, the company's sales/management/R&D/finance expense ratio was +0.27/0.42/0.76/0.10pct to 7.54%/4.36%/7.45%/0.18%.
Profit forecast: Benefiting from the increase in liquid cooling penetration under the AI wave and the broad space in the superimposed energy storage market, the company is expected to blossom more, and revenue and profit will further increase. We expect the company to achieve net profit of 5.28/ 6.97/ 885 million yuan in 2024-2026, corresponding PE 36/ 27/21 times. The 2024 profit was estimated at 45 times PE, and the target price was 41.7 yuan, maintaining the “buy” rating.
Risk warning: Downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.