Description of the event

The company released its 2023 annual report, and achieved full-year operating income of 3.242 billion yuan, an increase of 88.39%; attributable net profit of 190 million yuan, an increase of 38.73% over the previous year; and net profit after deduction of 183 million yuan, an increase of 37.81% over the previous year. The company released its 2024 quarterly report, achieving operating income of 658 million yuan, a year-on-year increase of 14.21%; attributable net profit of 39 million yuan, an increase of 14.23% over the previous year; and net profit after deduction of 31 million yuan, an increase of 15.14% over the previous year.

Incident comments

Engineering services led to the company's revenue growth in 2024, and continued to rise steadily in the first quarter. The company achieved annual revenue of 3.42 billion yuan, an increase of 88.39% over the previous year, mainly due to the good execution and settlement of the current project and a significant increase in revenue. By business, engineering service revenue was 2,740 million yuan, accounting for 84.71%, up 106.70% year on year, and industrial module design and manufacturing revenue of 495 million yuan, accounting for 15.29%, up 27.51% year on year. 2024Q1 achieved operating income of 658 million yuan, an increase of 14.21% year on year, and attributable net profit of 39 million yuan, an increase of 14.23% year on year.

Gross margin declined in 2023 (mainly due to an increase in the share of engineering business), and the cost ratio for the period decreased. The company's annual comprehensive gross profit margin was 14.54%, a year-on-year decrease of 5.27pct, mainly due to the simultaneous increase in costs due to the increase in business scale. The company's expense ratio for the 2023 period was 6.29%, a year-on-year decrease of 2.96pct. Among them, sales, management, R&D and financial expense ratios changed by -0.45, -2.61, 0.28, and -0.18pct to 0.61%, 4.40%, 1.46%, and -0.18%, respectively. Looking at a single quarter, the 2024Q1 comprehensive gross profit margin was 13.03%, down 2.80pct year on year, and the Q1 period cost ratio was 8.35%, up 0.84pct year on year. Among them, sales, management, R&D, and finance expenses changed by -0.24, -1.25, 2.12, 0.21pct to 0.75%, 5.03%, 2.37%, and 0.20%, respectively.

In terms of impairment, credit impairment increased in 2023, and the net attributable interest rate decreased. In 2023, the company's asset impairment income was 1,338,200 yuan, a year-on-year change of +554,500 yuan, and credit impairment losses of 4.1261 million yuan, an increase of 9.942,000 yuan over the previous year (mainly due to engineering projects). Taken together, the company's annual net interest rate was 5.87%, down 2.10 pct year on year, and 5.63% net interest rate after deduction, down 2.07 pct year on year. Credit impairment losses improved in the first quarter of 2024, and attributed/deducted net interest rates remained stable.

The impact of full-year and first-quarter cash flow on the growth of the company's engineering business fluctuated and varied. The company's net cash flow from operating activities for the year was 351 million yuan, down 68 million yuan from the previous year, down 48.64 pct from the previous year. At the same time, the company's balance ratio decreased by 2.08 pcts to 44.42% year on year, and the company's net cash flow from operating activities in the first quarter was 204 million yuan, an increase of 158 million yuan over the previous year, the revenue ratio was 79.83%, down 5.94 pcts year on year; at the same time, the company's balance ratio decreased by 5.75 pct to 38.47% year on year.

Looking ahead to 2024, the company has sufficient orders in hand, which is expected to support high future performance growth. On January 14, 2024, the company signed the “7000 tons/year SOOC Project General Contracting Contract Agreement” and the “41,000 tons/year optical resin project construction general contract” with Zhejiang Tuoxen Optical New Materials Co., Ltd., with a total contract value of about 650 million yuan. This year, the company won bids for various projects such as Lianhua Linde, Yououmei, Sinochem Blue Sky Honeywell, Covestro, Shadoma, UOP, Zhangjiagang Wacker, Quaker Chemical, Maoming Liquid & Air, and Meishan Yabao. The company has sufficient orders in hand, which is expected to support the rapid growth of the company's future revenue and performance. The company is expected to achieve net profit of 218 million yuan and 255 million yuan in 2024 and 2025, corresponding to the current closing price PE of 18.55 and 15.91 times, respectively, with a “buy” rating.

Risk warning

1. Order growth falls short of expectations; 2. Engineering business payback falls short of expectations.