Incident: The company released its annual report for the year 23 and the quarterly report for '24. It achieved revenue of 692 million yuan, a year-on-year increase of 14.82%, net profit of 133 million yuan, a year-on-year decrease of 8.78%, net profit after deducting non-return to mother of 128 million yuan, a year-on-year decrease of 8.84%; 24Q1 achieved revenue of 142 million yuan, a year-on-year increase of 1.40%, and net profit to mother of 1985 million yuan, a year-on-year decrease of 55.22%.

Here are our reviews:

Continued to cultivate the main business for 23 years, and gross margin increased year-on-year

The company's revenue growth in '23 was mainly due to the fact that the company continued to deeply cultivate its main business, investigate market opportunities, and actively explore domestic and international markets. Among them, the company's revenue in automotive electronics, smart metering, industry and safety, scientific instruments, and healthcare all achieved relatively rapid growth; due to the slowdown in new demand in the domestic and foreign air purifier markets, the company's sales revenue in the HVAC business declined year-on-year. The overall gross profit margin in '23 was 45.14%, up 0.89 percentage points year on year. The net profit decline was mainly due to: 1) In order to increase R&D investment for new products, R&D expenses increased 46.07% year on year, an increase of 25.94 million yuan; 2) In order to increase market development efforts, the company's marketing system talent team grew, domestic and foreign advertising, travel expenses and exhibition expenses increased by 32.09% year on year, an increase of 13.89 million yuan; 3) The company's Jiashan Park opened and put into operation in May 23, increased investment in labor, depreciation, etc., and incentives generated due to equity Due to the impact of share payment fees, the company's management expenses increased by 51.80% year on year, an increase of 13.54 million yuan; 4) Financial expenses increased 38.42% year over year to 6.37 million yuan due to a decrease in interest income and exchange income from the company's fund-raising accounts.

Looking at specific business: 1) Industrial and safety business revenue, mainly miniature infrared sensors and dust particle sensors, increased 63.48% year on year in '23; the company's industrial and safety business mainly includes safety and environmental protection, refrigerant leak monitoring, gas leak monitoring, energy storage heat loss monitoring, etc. Among them, revenue in the field of safety and environmental protection contributed greatly, and products in other fields were being promoted to market at an accelerated pace. 2) Revenue from the automotive electronics business, which mainly focuses on automotive comfort system sensors and high-temperature gas sensors, increased 36.72% year over year in '23.

① The total number of new automotive comfort system sensor projects has exceeded 1.4 billion yuan, and car seat ventilation fans have been launched at the same time; ② High temperature gas sensor funds have been launched to expand production capacity at home and abroad to achieve domestic replacement, the first engine emission oxygen sensor front installation efficiency exceeds one million units. The first Maekawa nitrogen sensor project has been measured and verified, and will be put into the market in batches in 24 years. At the same time, the company expanded production line to achieve a significant increase in production capacity; ③ In terms of power battery heat loss, uncontrolled production period after leaving the store, and online monitoring solutions for battery charging/discharging processes have obtained mainstream batteries With approval and orders from enterprise-level research institutes, power battery thermal loss sensors have been shortlisted as leading automotive enterprise battery companies, and the project will be mass-produced one after another. 3) In '23, revenue from the healthcare business, which mainly focuses on ultrasonic oxygen sensors, increased 68.51% year-on-year, continuing to broaden the healthcare business scenario and expand the layout to medical companies. 4) Revenue from the smart metering business, which mainly focuses on ultrasonic gas meters and their modules, increased by 114.98% year-on-year in '23. With the Jiashan Industrial Park put into operation, by the end of '23, the company had an annual production capacity of 1 million ultrasonic gas sensors and 1 million ultrasonic gas meters. 5) In '23, revenue from the scientific instrument business, which mainly focuses on environmental monitoring, increased 25.51% year-on-year. In the context of “double carbon” and the localization policy of scientific instruments, in addition to consolidating its advantages in the field of environmental monitoring, the company is also actively developing markets related to carbon measurement such as greenhouse gas analyzers. 6) Sales revenue from the HVAC business, which mainly focuses on civilian air quality gas sensors, fell 25.90% year on year in '23. The company consolidated and increased the market share of the HVAC business, and joined forces with the controller business to raise the unit value and industry competition threshold. 7) The company increased investment in low-carbon thermal technology research and development and expanded the R&D team. Relying on the advantages of the existing sensor technology platform and the technical accumulation of the core management team in the field of thermal energy, the company has achieved breakthroughs in technology research and development of products such as burners and heat exchangers.

The short-term performance of 24Q1 is under pressure, and is expected to be gradually released. The HVAC business gradually stabilizes the year-on-year increase in 24Q1 revenue mainly due to: 1) The company's business revenue has obvious seasonal characteristics, and the Q1 revenue scale accounts for a relatively small share. Businesses that are expected to increase in revenue in 2024 are expected to gradually be released in Q2 and Q3. 24Q1 revenue was achieved within the company's budget. 2) Revenue from the smart metering business, which mainly focuses on ultrasonic gas meters and its modules, increased 240.02% year on year; revenue from the industrial and safety business, mainly refrigerant leak monitoring sensors, increased 59.85% year on year; revenue from the automotive electronics business, which mainly focuses on automotive comfort system sensors, increased by 37.56% year on year; revenue from the healthcare business decreased 66.05% year on year, up revenue from the fourth quarter of 2023; revenue from the HVAC business decreased by 3.96% year on year and gradually stabilized. 3) Looking at the business area, the company's foreign trade revenue in the first quarter increased 22.00% year on year, and domestic business revenue fell 5.22% year on year, mainly due to the year-on-year decline in healthcare business revenue. The large decline in net profit in 24Q1 is mainly due to a year-on-year increase of 14.26 million yuan in the three expenses of 24Q1 management expenses, sales expenses, and R&D expenses. The increase in personnel costs was 7.4 million yuan due to the increase in the number of employees and salary increases. The increase in employees was mainly R&D personnel and personnel in the Jiashan Industrial Park. The implementation of 23 years of equity incentives led to an increase of 4.62 million yuan in share payment expenses, as well as an increase of 1.65 million yuan in expenses such as depreciation and transformation. 2) The gross margin of 24Q1 was 41.74%, a year-on-year decrease of 4.67 percentage points, mainly due to changes in product structure, the decline in the share of high-profit products such as healthcare and the increase in the relatively low gross profit share of automotive electronics. At the same time, the production capacity of Jiashan Industrial Park is gradually climbing and the relatively low production efficiency has had an impact on gross margin. Due to continuous cost reduction and process improvement measures, the gross margin of HVAC, automotive electronics, scientific instruments, smart metering, healthcare and other business sectors all increased year-on-year. 3) Other revenue in 24Q1 decreased by 3.63 million yuan year on year, including VAT refund revenue decreased by 5.45 million yuan year on year due to delays in payment and other reasons.

Profit forecasts and investment suggestions:

As an excellent supplier of gas sensors and analytical instruments, the company's customer structure is relatively stable. The main customers are well-known domestic and foreign companies, which have an outstanding position in the industry; the expansion of the gas sensor and gas analyzer market size and localization demand has provided the company with good development opportunities. Considering the impact of the company's new production capacity climbing in the early stages and the uncertainty of new business development, the company's net profit for 24-26 is estimated to be 2.13/3.06/416 million yuan (the original value for 24-25 was 271/368 million yuan), corresponding to PE 16/11/8X, maintaining the “gain” rating.

Risk warning: New business progress falls short of expectations; increased market competition; risk of fluctuating raw material costs, etc.