Core views

The company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 1,008 billion yuan, up 33.37% year on year; net profit to mother of 225 million yuan, up 13.52% year on year; net profit after deducting non-return to mother was 211 million yuan, up 13.21% year on year; and net cash flow from operating activities was 248 million yuan, up 606.14% year on year. 2024Q1's revenue continued to grow and profit was under pressure, achieving operating income of 225 million yuan, an increase of 24.8% year on year; net profit to mother was 37 million yuan, down 13.64% year on year; net profit after deducting non-return to mother was 0.28 million yuan, down 28.76% year on year. In 2024, strong policy support and immediate demand from coal mine customers are expected to drive continued strong demand in the industry, and the company's operating performance is expected to continue to grow, giving it a “buy” rating.

occurrences

On April 16, the company released its 2023 annual report. The company achieved operating income of 1,008 billion yuan, an increase of 33.37%; net profit to mother of 225 million yuan, an increase of 13.52% year on year; net profit after deducting non-return to mother was 211 million yuan, an increase of 13.21% year on year.

On April 25, the company released its report for the first quarter of 2024. The company achieved operating income of 225 million yuan, an increase of 24.8% year on year; net profit to mother was 37 million yuan, down 13.64% year on year. Net profit after deducting non-return to mother was 0.28 billion yuan, a year-on-year decrease of 28.76%.

Brief review

The company's operating performance in 2023 was outstanding, the net cash flow from operating activities improved significantly, and 2024Q1's revenue continued to grow. In 2023, the company benefited from high downstream prosperity in the industry, achieving operating income of 1,008 billion yuan, an increase of 33.37%; net profit to mother of 225 million yuan, an increase of 13.52% year on year; net profit after deducting non-return to mother of 211 million yuan, an increase of 13.21% year on year. In 2023, the company's net cash flow from operating activities was 248 million yuan, an increase of 606.14% over the previous year. The main factors were: (1) adjustment of the acceptance cycle; (2) the downstream prosperity of the industry remained at a high level; and (3) the company attached importance to repayment management.

2024Q1, the company's revenue continued to grow steadily, achieving operating income of 225 million yuan, up 24.8% year on year; net profit to mother of 0.37 million yuan, down 13.64% year on year, and 43 million yuan after excluding share payment expenses; net profit excluding share payment fees; net profit excluding share payments of 0.28 million yuan, down 28.76% year on year. The 2024Q1 profit pressure is mainly due to the company's efforts to expand its business scale and increase investment in new products and sales activities, which led to significant fluctuations in the current cost ratio.

R&D investment continues to grow, adding integrated positioning and navigation technology and AOA positioning technology for driverless mining. The company attaches great importance to the construction of R&D teams and the storage and development of new technologies and products, such as AI, 5G-related systems, robots, etc. In 2023, the company's R&D investment increased 47.47% year on year; 2024Q1 R&D investment increased 60.55% year on year; set up new special departments and teams to serve the intelligent driving business and chemical business, and completed the R&D of 12 major projects; and added 2 core technologies — integrated positioning and navigation technology for unmanned mining vehicles and AOA positioning technology.

Revenue from the core business of smart mining has maintained a relatively rapid growth rate, and gross margin has been slightly pressured by the impact of business structure and competition. In 2023, benefiting from the boom in the industry, the company's core business grew rapidly. Among them, the intelligent mine communication business increased 40.64% year on year, the intelligent mine monitoring business increased 38.52% year on year, the intelligent mine centralized control business increased 62.34% year on year, while the intelligent mining equipment supporting business fell 16.63% year on year. The internal demand for safety and unmanned operation of smart mining customers increased, driving the company's core products to continue to increase. The company's gross margin is under slight pressure. In 2023, the company's gross sales margin was 45.95%, down 3.71 pcts year on year; 2024Q1's gross sales margin was 41.69%, down 5.65 pcts year on year, mainly due to: (1) the share of high-margin business declined; (2) smart mining is a fully competitive industry. The product form is system delivery, and the overall gross margin will fluctuate to a certain extent; (3) The overall gross margin will remain stable, and may fluctuate slightly depending on the product composition.

The chemical business has completed the construction of a benchmark project and is expected to accelerate the formation of a second growth curve. In 2023, the company actively grasped the overall development trend of production safety, actively expanded the intelligent chemical industry chain, and made substantial progress in product research and development, organizational construction, and benchmark project construction. (1) Product development: The company has made landmark progress in chemical business research and development. It has completed research and development of projects such as three-dimensional integrated positioning systems for chemical plants, three-dimensional integrated positioning system software for chemical plants, and broadcast communication positioning systems for chemical plants, forming two major systems: a three-dimensional integrated positioning system for chemical plants and an intelligent emergency broadcasting system for chemical plants. (2) Organizational construction: A special chemical business department and sales team have been set up to promote intelligent chemical plant construction projects. (3) Benchmarking projects:

Beiyuan Group's “Personnel Positioning System Construction Project Contract” and “Emergency Broadcasting System” projects have been initially completed, and it is expected that they will be quickly promoted and replicated in the industry.

Looking ahead to 2024: Achieve efficient and sustainable growth of the company's business through a “strong chain+extended chain” approach. (1) Deeply cultivate the intelligent mining industry, develop new technologies and products, and enrich the product system. (2) Continue to explore the chemical field, develop new products with high technical content and high efficiency, and cultivate new growth points for the company's business. (3) Increase R&D personnel and capital investment in 5G, robotics, AI, etc. In January 2024, the Work Safety Commission of the State Council promulgated the “Three-Year Action Plan for Tackling the Root Causes of Work Safety (2024-2026)”. The “Plan” proposes that the level of mechanization, automation, informatization and intelligence in mines will be significantly enhanced through a three-year effort to reduce underground mine personnel by more than 10%. The “Guiding Opinions on Accelerating the Intelligent Development of Coal Mines” suggests that by 2025, large-scale coal mines and coal mines with severe disasters will basically be intelligent. We are currently at a critical point in time. Strong policy support and immediate demand from coal mine customers have contributed to continued strong demand for smart mines. As a leading intelligent mining enterprise, the company continues to promote “strong chain+extended chain”, and its business performance is expected to continue to increase.

Investment advice: Strong policy support and immediate demand from coal mine customers have led to continued strong demand for smart mines, and the company's business performance is expected to continue to rise. In 2023, the company's operating performance grew steadily, cash flow from operating activities improved dramatically, and R&D investment continued to increase, achieving efficient and sustainable development of the company's business through “strong chain+chain repair”. In 2024, strong policy support and immediate demand from coal mine customers will continue to increase demand for smart mines, which is expected to drive the company's business to continue to grow rapidly. We expect the company to achieve operating income of 12.90/16.12/1.97 billion yuan in 2024-2026 and achieve a profit of 2.81/3.46/415 million yuan, corresponding to PE 16.49/13.41/11.18 times PE, giving it a “buy” rating.

Risk analysis

1) Downward risks in the macroeconomic environment: As China's basic energy industry, the state of the coal industry is significantly related to the country's macroeconomic performance. In the future, if the macroeconomic environment and cyclical fluctuations in the coal industry decline, the company's main business will be greatly adversely affected, and there is a risk that business performance will decline.

2) Risk of cyclical fluctuations in the coal industry: The company is in the intelligent mining industry, which mainly serves the coal industry. Although its industry demand is not directly related to conventional fluctuations in coal prices, it is greatly affected by industrial policies related to China's coal industry and coal mine rehabilitation and construction, so the overall development of the coal industry will have an impact on the development of the intelligent mining industry.

3) Risk of changes in industry policies: If the policy undergoes major adjustments to the intelligent mining industry, and related policies and measures are tightened, leading to a reduction in market demand related to the smart mining industry, and the company is unable to adjust in a timely manner in terms of operation and product technology to adapt to relevant policy changes, this will have a great adverse impact on the company's business development and profitability.

4) The risk that R&D and implementation promotion of new technologies and products falls short of expectations: If the development and implementation promotion of new technologies and products falls short of expectations during the development process, it may weaken the company's overall competitiveness. In addition, the company needs to continuously invest in related technology research and development. If the relevant business does not bring the company an increase in revenue covering the investment in the short term, it will have an impact on the company's short-term profitability.

5) Sensitivity analysis: If the company's intelligent mine communication system business falls short of expectations and falls by 50% in 2024, the company's overall revenue will drop by 22.57%; if the company's intelligent mine monitoring system business falls short of expectations and falls by 50% in 2024, the company's overall revenue will drop by 19.22%; if the company's intelligent mining equipment supporting business falls short of expectations and falls by 50% in 2024, the company's overall revenue will drop 5.74%. If the company's intelligent mine integrated system business falls short of expectations in 2024 and falls by 50%, then the company's overall revenue will drop 7.84%.