Incident: From April 24 to April 25, the company successively released the 2023 annual report and the 2024 first quarter report. In 2023, the company achieved main business revenue of 7.411 billion yuan, an increase of 16.34% over the previous year, and achieved net profit of 744 million yuan, an increase of 28.44% over the previous year. In the first quarter of 2024, the company's main business revenue was 1,567 billion yuan, up 0.48% year on year; net profit to mother was 148 million yuan, up 6.48% year on year. In terms of revenue composition, in 2023, the company's industrial automation instrument and equipment business achieved revenue of 6.598 billion yuan, +17.73%; composite materials of 586 million yuan, +6.26% year over year; and electronic devices of 156 million yuan, +3.49% year over year. In 2023, the company's overall operating gross margin and net margin were 34.2%/10.07%, respectively.

Continue to invest in new product research and development to accelerate product iterative upgrading. In 2023, the company completed the acceptance of 8 national key R&D plans including “Key Technology for Measurement and Control Equipment Information Security”, and some R&D results achieved application verification in the fields of petrochemicals and photovoltaic power generation. The company has accelerated the launch of more than 20 new products, including high-end intelligent diagnostic pressure transmitters, high-parameter electrohydraulic actuators, thermal gas mass flow meters, and high-precision HART temperature transmitters, and has been industrialized one after another. In 2023, the company added 3 new intelligent production lines and 1 digital workshop, completed the main construction of a smart factory demonstrating intelligent field instrument innovation, and achieved a 10%-37% increase in production capacity for the main products.

Focusing on downstream core needs, market development has made multiple breakthroughs. The company continues to improve its solution capabilities, adding 59 automated solutions, covering the general market and fields of lithium electricity, pharmaceuticals, etc.; adding customer orders in the fields of coal mining, thermal power, hydropower, and gas mining. In 2023, the company's main products, intelligent transmitters, intelligent control valves, intelligent flow meters, temperature meters, etc., saw a high year-on-year increase; revenue in the petrochemical, equipment manufacturing, engineering support, and new energy markets maintained relatively rapid growth, and new orders increased 9.6% year over year.

Investment advice: Domestic industrial automation instruments to accelerate the expansion of downstream fields and increase penetration in the middle and high-end markets. We expect the company to achieve operating income of 84.53/97.01/10.913 billion yuan and net profit to mother of 837/9.76/1,130 billion yuan in 2024-2026. The corresponding PE was 13.4/11.5/9.9 times, respectively, maintaining the “gain” rating.

Risk warning: Macroeconomic downturn risk; production capacity increase is lower than expected; localization substitution rate is lower than expected.