Incident: The company released its 2023 annual report on March 14, achieving full year revenue of 2.66 billion yuan, YoY -3.9%; net profit to mother of 300 million yuan, YoY -18.3%; net profit after deducting non-attributable net profit of 290 million yuan, YoY -21.2%. The 2023 results are within the scope of the previous earnings report data.
4Q23 revenue surged 122% year over year; gross margin level declined throughout the year. 1) Looking at a single quarter, the company: 1) 4Q23 achieved revenue of 1.35 billion yuan, an increase of 121.7% year on year; net profit to mother was 60 million yuan, an increase of 420.5% year on year. The company performed well in the fourth quarter. 2) In terms of profitability, 4Q23 gross margin decreased by 8.50ppt to 8.3% year on year, and net margin increased 2.56ppt to 4.4% year over year. In 2023, the comprehensive gross margin decreased by 5.31ppt to 19.0% year on year, and the net margin decreased by 1.99ppt to 11.4% year on year. The decline in profit margin was mainly due to changes in the cost structure due to differences in product structures delivered this year. The gross margins of drone systems, related products, and drone technology services decreased by 5.98 ppt and 21.80 ppt, respectively.
Continued focus on the main drone business; the revenue structure is basically stable, but the main cost structure has changed. By product, the company's 2023:1) Revenue from drone systems and related products was 2.56 billion yuan, YoY -6.2%, accounting for 96% of total revenue; gross margin decreased by 5.98ppt to 18.0% year on year; 2) Drone technology service revenue was 110 million yuan, up 136.4% year on year, accounting for 4% of total revenue; gross margin decreased 0.04ppt to 42.0% year on year. In terms of cost composition, the various raw materials required for the final assembly of the company's drone systems are outsourced, so the cost composition of drone systems and related products is mainly based on direct material costs.
The company's direct material costs for drone systems and related products in 2023 were 1.79 billion yuan, a year-on-year decrease of 3.8%, accounting for a year-on-year decrease of 97.2%; however, direct labor, manufacturing costs, and other direct costs changed significantly, increasing 62.3%, 68.7%, and 34.1% year-on-year respectively. The changes in the main cost composition were mainly due to differences in the status of the company's drone system products in 2023, and differences between related production and test flight work and the previous year.
Expense control capabilities have improved; domestic market expansion may be stepped up in 24 years. In terms of expenses, the company's expense ratio for 2023 was 7.2%, a year-on-year decrease of 2.12ppt. Among them: 1) the sales expense ratio was 0.75%, up 0.04ppt year on year; 2) the management expense ratio was 3.5%, a year-on-year decrease of 0.02ppt; 3) the R&D cost rate was 6.5%, a year-on-year decrease of 0.34ppt; and R&D expenses were 170 million yuan, a decrease of 8.7% year on year, mainly affected by the settlement period of the development project contract. In terms of related transactions, related purchases are expected to be 1.4 billion yuan in 24, up 62.3% from the actual amount generated in 23, and the company predicts that production will increase; related sales are expected to be 1 billion yuan, a decrease of 45.9% from the actual amount accrued in 23. The company expects to expand the domestic market in 24, and the related sales ratio will decrease; and the estimated amount of related deposits will increase from 700 million to 2 billion yuan.
Investment advice: The company is a leading large-scale drone system enterprise in China. Benefiting from the increase in demand for equipment going overseas and domestic special fields, compounded by low-altitude economic industry catalysis, the company is expected to achieve rapid development in the next few years.
According to differences in the company's product status and changes in demand structure, we adjusted the company's net profit from 2024 to 2026 to 417 million yuan, 570 million yuan, and 762 million yuan, corresponding to the 2024-2026 PE of 63x/46x/34x, maintaining the “recommended” rating.
Risk warning: downstream demand falls short of expectations; competition in domestic and foreign markets intensifies, etc.