Revenue performance grew steadily throughout the year, and Q1 operations were under pressure. In 2023, the company achieved revenue of 1.88 billion/+12.0%, net profit to mother of 290 million/ +9.5%, and net profit of non-return to mother of 280 million/ +9.2%. Among them, Q4 revenue was 460 million/ -9.0%, net profit attributable to mother was 40 million/ -60.2%, and net profit not attributable to mother was 0.3 million/ -61.6%. 2024Q1 achieved revenue of 280 million/ -23.5%, net profit attributable to mother of 0.4 million/ -32.2%, and net profit of non-return to mother of 0.4 million/ -33.3%. The company plans to pay a cash dividend of 10 yuan for every 10 shares, with a cash dividend rate of 58%. Combined with the company's mid-term dividends and share repurchases, the total dividend rate is 72%.

Export sales of household shielding pumps were affected by inventory, and domestic sales recovered positively. The company achieved revenue of 770 million yuan for household shielding pumps in 2023, an increase of more than 15% over the previous year, of which H1/H2 is expected to be +63%/-12% respectively. The company's domestic sales of household shielding pumps achieved relatively rapid growth in 2023, and export sales benefited from the forward-looking layout of energy-saving pumps and heat pump ancillary products to achieve good growth. However, since 2023H2, demand for European heat pumps has declined due to falling European gas prices, weak economic growth, and high inflation. According to data from the European Heat Pump Association, heat pump sales in 14 European countries fell from 2.77 million units to 2.64 million units in 2023, a year-on-year decrease of 5%. It is expected that due to the impact of inventories, the company's export exports will drop relatively even more.

From a long-term perspective, driven by factors such as energy saving and emission reduction, demand for heat pumps in Europe and the US still has great potential for development. As a domestic household shielded pump faucet, the company has developed many leading domestic and foreign heat pump customers, and is expected to benefit from the development of heat pumps in the long term.

The scale of civilian pumps is stable. The company's revenue from civilian pumps in 2023 was 650 million, the same as the previous year, with H1/H2 +5%/-4% respectively. The company's domestic civilian pump business recovered, and overseas declined slightly. The company established a new “Rayker” brand to operate commercial pump products, and achieved revenue of 0.3 billion in 2023, which is expected to become a new growth point in the future.

Industrial pumps and liquid-cooled pumps continued to grow strongly. The company's industrial pump revenue increased 41% to 300 million in 2023, of which chemical pump revenue increased by more than 50%. The company's liquid-cooled pump revenue was 50 million, an increase of about 25% over the previous year. The company continues to explore new applications and explore fields such as energy storage and data room liquid cooling, and is expected to continue to contribute more in the future.

Profit declined due to increased gross margin and increased expenditure. The company's gross margin in 2023 was +2.6 pct to 32.0%, and the 2024Q1 gross margin was +2.9 pct to 35.9% year-on-year. It is expected mainly due to product structure optimization and raw material cost reduction. The company's sales/management/R&D/finance expense ratios in 2023 were +1.1/+0.2/+0.9/+0.6pct to 5.4%/4.9%/4.6%/-1.0% year-on-year, respectively. Q1 was +1.5/+1.5/+2.0/ -0.6pct, respectively. Expense investment increased. In 2023, the company's net profit margin was 0.4 pct to 15.2%, and Q1 net profit margin was 1.9 pct to 14.7%.

Risk warning: overseas demand growth falls short of expectations; industry competition intensifies; new customer expansion falls short of expectations.

Investment advice: Adjust profit forecasts to maintain a “buy” rating.

The company is the leading shielded pump in China. Considering that demand for shielded pumps from overseas has entered the inventory digestion cycle and adjusted profit forecasts, the net profit for 2024-2026 is estimated to be 3.2/37/410 million (previous value was 4.3/50/ 100 million), an increase of 13%/15%/12% over the previous year, corresponding to PE = 11/10/9x, maintaining a “buy” rating.