Event: The company publishes its 2023 annual report. The company achieved operating income of 3,559 billion yuan, an increase of 34.50% year on year; net profit to mother was 496 million yuan, an increase of 58.21% year on year.

Key points of investment

Revenue has been growing steadily over a long period of time, with the infrared main business providing additional revenue profit: in 2023, the company achieved revenue of 3,529 billion yuan, an increase of 34.50% year on year; net profit to mother was 496 million yuan, an increase of 58.21% year on year, achieving rapid revenue growth for seven consecutive years. The main reason is that during the reporting period, the company continued to invest in R&D and develop new products, strengthen market development, and expand sales. The company's gross sales margin was 50.02% (+3.44 pct year over year), and profitability was steady. In terms of revenue composition, the company's infrared business has significant technical advantages and established a competitive advantage in the market, achieving revenue of 3.06 billion yuan (accounting for 84.48% of total revenue), an increase of 34.59% over the previous year; operating profit of 1,617 billion yuan (accounting for 90.86% of total profit), an increase of 43.51% over the previous year. Meanwhile, the microwave radio frequency business gradually expanded and achieved revenue of 405 million yuan in 2023, an increase of 15.75% over the previous year.

Two new subsidiaries are planned to be added, and the business layout is further multi-dimensional: in 2023, the company issued successive announcements to jointly fund the establishment of holding subsidiaries Ruiswei and Ruichuang Photonics (Wuxi) with affiliated companies. Among them, Ruiswei mainly promotes the company's development and further specialized integration in the field of microwave semiconductors and radio frequency electronic systems. Ruichuang Photonics (Wuxi) mainly promotes the company's development in the field of photonic chips and further extends the company's industrial chain. The company's special establishment of subsidiaries is conducive to raising the level of business specialization in corresponding fields and improving the company's layout in the field of multi-dimensional perception. New companies can also make full use of the company's existing marketing network resources to develop rapidly. Developing corresponding businesses will help the company to further benefit from growing domestic market demand, rapid technological evolution, and localization substitution in related fields.

The two major special civilian markets continue to expand, and the domestic and international business is two-wheel drive: At present, the company has formed a new pattern where infrared business is the main focus, and multi-dimensional sensing fields such as microwave and laser are gradually breaking through. The products are widely used in the two major markets of special equipment and civilian use. The total capacity of China's infrared market for special equipment has reached more than 30 billion yuan. As defense informatization construction continues to advance, demand for infrared imaging, night vision, and weapon guidance will continue to grow. On the civilian side, the company completed the layout of in-vehicle infrared thermal imaging products in the automotive industry, met a wide range of intelligent driving needs, and obtained targeted projects from leading car companies such as BYD and Geely. In the international market, infrared cameras have become an important consumer market in the civilian sector. According to Yole's forecast, the global unrefrigerated civilian infrared market will reach 7.5 billion US dollars in 2025, and demand is broad, providing the main support for the company's export business.

Profit forecast and investment rating: The company's performance is in line with expectations. The company is in a leading position in the infrared industry, but considering the pace of downstream equipment release, we lowered the company's 2024-2025 net profit forecast to 6.84/898 million yuan (previous value 774/993 million yuan), and added the 2026 net profit forecast value of 11.76 yuan, corresponding to PE 19/15/11 times, respectively, maintaining the “buy” rating.

Risk warning: 1) technology and product development risk; 2) downstream market change risk; 3) trade environment change risk; 4) financial risk.