The company released its 2023 annual report and 2024 quarterly report

The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income of 4.816 billion yuan (+66.46%), net profit of 49 million yuan (+163.59%), net profit after deducting non-return to mother of 16 million yuan (+106.04%), net cash flow from operating activities -0.4 billion yuan (+56.55%), and a weighted average return on net assets of 1.63% (+1.02pct), and continued growth in both revenue and net profit.

In 2024, Q1 achieved operating income of 1,160 million yuan (+8.18%), net profit to mother of 0.29 million yuan (+15.23%), net profit after deduction of $0.24 billion (+83.53%), and a weighted average return on net assets of 0.96% (+0.12pct).

Pay attention to R&D investment and focus on developing markets in new business fields

The company attaches great importance to R&D, effectively collaborates independent research and development with joint ventures around the cooling and heating business, and focuses on developing a series of energy-efficient, environmentally friendly, efficient and intelligent cooling and heating technologies and products. In 2023, the company's total R&D expenses were 164 million yuan, with a R&D expenditure rate of 3.41%; 2024Q1's R&D expenses reached 37 million yuan, and the R&D expenditure rate was 3.18%. Looking at projects, in addition to strengthening the product line, the company's R&D projects in 2023 include screw compressors, screw heat pump units, and next-generation GHP integrated chiller units, etc., as well as a number of projects conducive to market development in new business fields, such as MRC hybrid refrigerant units, CCUS pressurization units, and liquefied cooling units for shipborne CCUS systems.

Industrial and commercial refrigeration continues to expand, and Songyang companies collaborate effectively

The company has been deeply involved in the industry for many years, and its main business continued to strengthen in 2023. It is already close to the technical level of major international competitors in the field of industrial refrigeration, and has caught up in some fields. It has signed several more projects with industry giants such as BASF, Germany's Covestro, CNPC, and Sinopec; in the field of commercial refrigeration, the company successfully signed a Red Star Cold Chain Direct Supply Center expansion project. After the acquisition, Songyang Company also achieved effective collaboration with the company's original business. Among them, the subsidiary Bingshan Engineering Company collaborated efficiently and actively served high-end customers; Songyang compressors continued to innovate independently and received many recognitions; Songyang Refrigeration implemented business adjustments to divest the multi-line air conditioning business and focus on the industrial energy saving market. Orders in 2023 increased markedly year-on-year.

Investment advice

We believe that domestic cold chain demand is expected to continue to grow this year, but demand in downstream chemical and other industries is currently weak, and large-scale equipment renewal policies are yet to be catalyzed. Therefore, we adjusted the company's profit forecast to: 2024-2026's projected operating income of $54.41/61.99/7.102 billion yuan (2024-2025 was $56.05/6.537 billion yuan); 2024-2026 forecasted net profit of $123/1.80/244 million yuan, respectively (pre-2024-2025 value was 2.04/302 million yuan); and EPS for 2024-2026 is 0.15/0.21/0.29 yuan (2024 -Before 2025, the value was 0.24/0.36 yuan). The PE corresponding to the company's current stock price is 29/20/14 times. Maintain a “buy” investment rating.

Risk warning

1) Risk of policy fluctuations; 2) Risk of increased market competition affecting profit margins; 3) Risk of large fluctuations in raw materials; 4) Risk that information based on research is not updated in a timely manner and does not fully reflect the latest state of the company.