Event: The company released the 2023 Annual Report and the 2024 First Quarter Report. For the full year of '23, the company achieved revenue of 490 million yuan, yoy +27.5%; net profit to mother of 90 million yuan, yoy +33.6%. In Q1 '24, the company achieved revenue of 110 million yuan, yoy +12.6%; net profit to mother was 0.2 billion yuan, yoy +74.7%. Profit for the first quarter exceeded expectations.

Industrial Internet & Smart Distribution Grid main products are growing steadily. In '23, benefiting from the promotion of overseas and domestic smart industries and China's demand for refined upgrades of distribution grid monitoring, the company's industrial Internet communication products achieved revenue of 280 million yuan, an increase of 25.1% over the previous year; intelligent distribution network monitoring products achieved revenue of 130 million yuan, an increase of 58.2% over the previous year; the intelligent sales system was impacted by the global economic environment, and revenue fell 10.3% to 50 million yuan.

Looking ahead, global industrial intelligence will continue to advance, industrial router products will continue to grow as the underlying foundation of communication, global economic recovery is expected to bring growth elasticity to products such as enterprise networking and intelligent sales, and the company's five major business segments will continue to drive growth.

Gross profit margins have continued to grow, and expenses have remained stable. In terms of gross margin, benefiting from the company's product upgrades and iterations, the devaluation of the RMB, and changes in the distribution structure, the comprehensive gross margin increased by 3.4 pp to 51.5% year on year in 23; the comprehensive gross margin increased to 52.8% in 24Q1, +5 pp year on year and -0.6 pp month on month. In terms of expenses, the company's comprehensive cost rate declined steadily in '23, to 32.8%, -0.3 pp; 24Q1's comprehensive expense ratio was 33.5%, -3.9 pp year on year and -3.4 pp. In terms of net interest rate, the company's net interest rate in '23 was 19.1%, +1.1 pp; 24Q1 net interest rate was 15.4%, +5.9pp year over year, and -2.8pp month-on-month; the increase in net interest rate was mainly due to an increase in gross margin and a decrease in expense ratio.

International expansion is accelerating, and the focus is on AI empowerment. The company's product internationalization matrix continues to expand. In 23 years, it launched a series of FWA, ODU, and cellular router convenient networking products for the North American market; launched a series of products supporting ITXPT standards for the European market; completed the development of IWOS versions for overseas; AI door opener development has also been carried out in North America, and AI door opener prototypes have been delivered for testing in Southeast Asia; all models of edge computing gateways are suitable for cellular network modules in Europe, North America and Australia. In terms of AI empowerment, the company has established visual recognition technology capabilities based on deep learning to enable all product applications; it has also launched edge computing products with AI acceleration capabilities, which are widely used in industrial routing, vehicle networking platforms, and retail smart cabinets.

Profit forecast and investment advice: The company's 24-26 EPS is estimated to be 1.67 yuan, 2.24 yuan, and 2.87 yuan, respectively, and the corresponding PE is 19 times, 14 times, and 11 times, respectively. Referring to comparable company valuations and the compound growth rate of 31% of the company's 24-26 profit, we gave the company 25 times PE in 24 years, and the corresponding target price was 41.75 yuan, which covered the “buy” rating for the first time.

Risk warning: risks such as macroeconomic fluctuations, industrial companies' informatization expenses falling short of expectations, and the company's new product promotion falling short of expectations.