Incident: On March 27, the company released its 2023 annual report. In 2023, the company achieved operating income of 576 million yuan, a year-on-year decrease of 27.03%; net profit to mother was 100 million yuan, a year-on-year decrease of 13.39%; net profit after deducting non-return to mother was 95 million yuan, a year-on-year decrease of 11.57%. In 4Q23, the company achieved operating income of 225 million yuan, a year-on-year decrease of 24.50%; net profit to mother was 77 million yuan, an increase of 69.81% year on year; net profit after deducting non-return to mother was 73 million yuan, an increase of 65.55% year on year.

The main business was under pressure in the short term, and performance was boosted by one-time additions: Affected by the tight capital chain of downstream customers, some accounts receivable were overdue, bad debt preparations and credit impairment loss accruals increased, and performance was affected. If repayments from old projects improve, it is expected to recover in the future. In the fourth quarter, the company's performance improved significantly year-on-year, mainly benefiting from the one-time confirmation of additional revenue of 143 million yuan from the Laogang Project. Among the sludge disposal projects, the Taihe Sewage Treatment Plant expansion project is being implemented, the Guangzhou Daguan BOT project is in stable operation, and the Shenzhen Fuyong project has been completed and accepted. In addition, the company's other projects in Shanghai, Guangdong, Shandong, Jiangsu and other regions were implemented according to the plan.

Application value expectations in the field of core equipment industry: In the field of coal chemistry, the five gasification fine slag dehydration and drying projects implemented by the company have made full use of carbon residue, solved the problems of dehydration, drying and resource utilization of high-temperature gasification ash, and increased the reuse rate of water resources by 15-20%; in the field of lithium batteries, the ternary cathode material dehydration and drying demonstration and mass production projects undertaken by the company have completed completion and acceptance. They have advantages such as short process, low temperature, closed negative pressure, etc., to ensure the quality of treated materials and have a good competitive advantage.

Multi-point layout promotes energy-saving and low-carbon transformation: The high-water source heat pump technology and equipment developed by the company has been successfully applied in several sludge dehydration and drying projects, and has developed a contract energy management service model to enhance the company's competitiveness in the field of energy-saving and low-carbon high-end equipment. In the field of dual carbon services, the company achieved revenue of about 10 million yuan in 2023. By the end of 2023, the holding subsidiary Jiecan Technology had set up five branches, 52 active projects, and abundant reserves. In 2023, the company established a hydrogen energy division and invested in Platinum New Energy to continue to develop the fields of metal hydrogen storage and organic solution hydrogen storage, and is deeply integrated with the company's existing energy-saving and low-carbon technology equipment to fully explore relevant application scenarios.

Investment suggestions: one-time additional revenue confirmation relieves pressure on performance; industrial application scenarios continue to be developed, and core equipment has a good competitive advantage; multi-point layout in the field of energy saving and carbon reduction; high-temperature water source heat pumps, dual-carbon integrated services, etc. are expected to contribute new profit growth points. Based on the company's operating conditions, the profit forecast is estimated to be 0.48/0.59 yuan/share in 24/25 (previous value 0.52/0.69/yuan/share), respectively, and the EPS for the new 26 years will be 0.69 yuan/share, corresponding to the closing price of PE on March 27, 2024, which is 22/18/15 times, respectively. Considering that the company's core equipment is still in its early stages of application in the industrial field, it has good growth potential, maintaining 24.0 times PE in 2024, with a target price of 11.52 yuan/share, maintaining a “careful recommendation” rating.

Risk warning: industry policy risks; fluctuating raw material prices; increased industry competition.