Incidents:
The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 5.433 billion yuan, +3.22% year-on-year, and net profit of 210 million yuan, or +73.63% year-on-year. 2024Q1 achieved revenue of 1,034 million yuan, +5.56% year over year, and net profit to mother of 89 million yuan, +123.57% year over year.
The main pump business continues to develop steadily, and the profit level has increased
The company's core business pump products are expected to achieve operating revenue of 4.795 billion yuan in 2023, with a year-on-year increase of about 12.60%, and a 3-year CAGR of 13.78%; in terms of profit, gross margin increased from 35.22% in 2022 to 39.74% in 2023; mainly due to the gradual adjustment and upgrading of the company's product structure and the increase in overseas sales share. The company adjusted the intelligent manufacturing project with an annual output of 200,000 sets of high-efficiency and energy-saving pumps to an intelligent manufacturing project with an annual output of 16 million pieces of high-efficiency and energy-saving pump core components. It is expected that after the adjustment, the transportation costs of parts and semi-finished products will be reduced, and the overall competitive strength and subsequent operating stability of the company's water pump business will be enhanced.
The environmental protection business gradually slimmed down and losses were reduced, and performance implementation uncertainty was reduced. The company's environmental protection business mainly involved segments such as survey and design, environmental consulting, hazardous waste treatment and environmental protection project operation. In 2023, the subsidiaries Nanfang CICC, Huayu, Jin Tailai, and Lu Liang Environmental Protection each achieved net profit of 0.31/-0.97/-0.63/-83 million yuan, and most environmental protection businesses became a drag on the company's performance. In recent years, the company has promoted the environmental business “slimming and fitness” through various methods, including asset impairment of Lu Liang Zhongjin Environmental Technology's vegetable leaf project; and measures such as recovering some accounts receivable to reduce losses. Strengthen the disposal of “non-main business, non-dominant, inefficient, and ineffective” assets and businesses.
The company's loss reduction effect in the first quarter was obvious. The improvement in the profit statement greatly exceeded expectations. The company's quarterly report showed that asset impairment losses were 6.28 million yuan, mainly due to the recovery of long-term contract assets in the current period to recover bad debts, which was 4.6 million yuan in the same period in 2023; at the same time, the first quarterly report achieved investment income of 29 million yuan, mainly due to investment income from disposal of subsidiary shares. The company's results in the processing business related to environmental protection assets are gradually highlighted, and the company's profit statement is expected to continue to benefit from the steady development of the water pump business and the rational disposal of environmental loss assets.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 60.58,68.57/7.705 billion yuan, respectively, with year-on-year growth rates of 11.49%/13.19%/12.38%, net profit to mother of 3.87/5.95/690 billion yuan, year-on-year growth rates of 92.95%/53.85%/15.92%, EPS 0.20/0.31/0.36 yuan/share, respectively, and a 3-year CAGR of 50.97%. As the company's main business pump product revenue continues to grow steadily, compounding the gradual narrowing of the traditional loss-making business, referring to comparable companies, we gave the company 20 times PE in 2024, maintained a target price of 4.03 yuan/share, and maintained a “buy” rating.
Risk warning: Downstream demand and pump exports are low, and the company's environmental protection business disposal progress is low.