What happened: recently, the company released its annual report for 2021 and a forecast for the first quarter of 2022.

In 2021, the company achieved operating income of 3.5 billion yuan, an increase of 4.98% over the same period last year, and a net profit of 1.111 billion yuan, an increase of 11.00% over the same period last year. The company's net profit in the first quarter of 2022 is expected to be 310 million yuan to 358 million yuan, an increase of 30% 50% over the same period last year.

Sales of infrared thermal imagers for human body temperature measurement dropped sharply compared with the same period last year, while other businesses increased steadily. The epidemic situation was well prevented and controlled in 2021, and the demand for infrared thermal imagers for human temperature measurement dropped sharply, resulting in a 30% reduction in production and inventory of the company's infrared thermal imagers and integrated optoelectronic systems compared with the same period last year. The company's infrared detector chips, model products and non-epidemic prevention products have maintained a trend of continuous growth, making up for some of the gaps in the field of human temperature measurement. Revenue from the infrared thermal camera business finally recorded 2.615 billion yuan, a decrease of 9.40% compared with 2020. Business orders for traditional ammunition and information-based ammunition increased significantly, with an operating income of 803 million yuan, an increase of 88.01 percent over the same period last year.

The significant increase in revenue from the ammunition business with low gross margin has led to a decline in overall gross profit margin. The company's gross profit margin was 55.93%, a decrease of 3.27pct compared with the same period last year. The business of traditional ammunition and information ammunition grew rapidly, accounting for 22.94% of revenue, an increase of 10.13pct over the same period last year, and a gross profit margin of 26.74%, a decrease of 3.73pct over the same period last year. Due to the relatively low gross profit margin of the ammunition business, the revenue share has increased significantly compared with the same period last year, resulting in a slight decline in the company's overall gross profit margin. The gross profit margin of infrared thermal imagers was 64.90%, an increase of 1.05pct over the same period last year, mainly due to an increase in sales of high-value model products and detector chips.

During this period, the expense rate decreased significantly. During the period of the company, the expense rate was 19.06%, which was reduced by 3.19pct compared with the same period last year. The sales expense rate was 2.5%, a decrease of 0.87pct compared with the same period last year, mainly due to the decline in agency fees for overseas customers under the influence of the international environment. The rate of management expenses was 6.02%, an increase of 0.92pct over the same period last year, which was mainly due to the increase in labor by adjusting the salary structure of the company. The financial expense rate is-0.11%, a decrease of 0.16pct compared with the same period last year, mainly due to the increase in interest income caused by the purchase of large certificates of deposit. The R & D expenditure rate was 10.60%, which was reduced by 3.07pct compared with the same period last year, which was mainly due to the one-time expense of the previous year's 502B and TN-2 projects, which was not the case this year.

There has been a substantial increase in inventory and contract liabilities and large new orders have been signed. The company's inventory was 1.656 billion yuan, an increase of 14.61% over the same period last year; the contract debt was 662 million yuan, an increase of 185.20% over the same period last year, indicating that the company had sufficient orders on hand. The company maintains a high winning rate in the bidding project by virtue of its profound technical strength. In the field of optoelectronic integrated system, the company won the first and second place in some kind of airborne optoelectronic pod project for the first time, and won a key project in the overall field of complete equipment system. In March 2022, the company announced that a new equipment model order contract was signed with an amount of 269 million yuan, accounting for 7.69% of revenue in 2021. With the follow-up production of bidding projects and the delivery of newly signed contracts, the company's performance is expected to continue to grow in the future.

Investment suggestion: the company's security, industrial, drone payload and other non-epidemic prevention civilian products business continues to maintain rapid growth, and orders for model products and complete weapons and equipment are sufficient. Superimposed Handan mechanical and electrical new explosive zone completed and put into production to further release ammunition production capacity. We predict that the company's net profit from 2022 to 2024 is 1.423 billion yuan, 1.768 billion yuan and 2.112 billion yuan respectively. The corresponding PE were 27.9,22.5,18.8 respectively. Coverage for the first time, giving a "overweight" rating.

Risk hint: the delivery of model products and complete weapons and equipment is not as expected, and the prices of traditional ammunition and information-based ammunition have dropped significantly.