Description of the event

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 2,694 billion yuan, a year-on-year increase of 14.3%, and a year-on-year decrease of 69.36% (falling within the previously forecast range). Of these, the 2023Q4 company achieved revenue of 82 billion yuan, a decrease of 3.82% over the previous year, and a return of -125 million yuan. 2024Q1 achieved revenue of 497 million yuan, a year-on-year decrease of 14.42%, and a return of 50 million yuan, a year-on-year decrease of 46.46%.

Incident comments

In 2023, the company's power equipment supply revenue reached 1.05 billion yuan, an increase of 58.6% over the previous year, which was the main factor in revenue growth. Revenue from other sectors remained stable. In terms of gross margin, the company's gross margin in 2023 was 19.36%, down 7.3 pct year on year, mainly due to a sharp decline in gross margin for power engineering construction and smart electricity services, which is expected to be relatively low, mainly due to relatively low gross margin of high-growth businesses such as optical storage; 2024Q1's gross margin was 17.37%, a relatively large year-on-year decline, but it is at the same level as 2023Q2-2023Q4 gross margin.

In terms of impairment, the company's assets depreciated by 43 million yuan in 2023, which is expected to be mainly due to impairment of related assets; credit impairment of 140 million yuan is expected to be mainly due to preparation for bad debts receivable. These two were the main causes of the company's 2023Q4 losses. The company began strengthening account management last year. 2024Q1 achieved positive income of 0.3 billion yuan from credit impairment losses, which is expected to be recovered mainly due to bad debts receivable.

In terms of other financial indicators, the balance receivable at the end of 2024Q1 was 1.7 billion yuan, a decrease compared to the end of 2023; the net cash flow outflow of 2024Q1 was 80 million yuan, a significant improvement over 2023Q1.

Looking ahead, we believe that as the company's impairment issues are gradually properly resolved. Under the trend of domestic electricity reform, industrial and commercial optical storage, optical storage and charging, electricity software, and overseas markets are the company's core growth points in the future. The company is expected to have sufficient industrial and commercial energy storage orders, which is expected to support performance growth in 2024; the active layout of storage and charging alone is expected to contribute to performance growth; the electricity software business is expected to explode with electricity reform; and at the same time, actively explore overseas markets. The company is expected to achieve net profit of about 270 million yuan in 2024, corresponding to about 18.6 times PE. Maintain a “buy” rating.

Risk warning

1. Macroeconomic downside risks;

2. Market competition increases risk;

3. The repayment falls short of the expected risk.