Incident: Dahua Co., Ltd. released its 2023 annual report and report for the first quarter of 2024. In 2023, it achieved revenue of 32.218 billion yuan, an increase of 5.41% year on year; net profit to mother of 7.362 billion yuan, an increase of 216.73% year on year; realized net profit without return to mother of 2,962 billion yuan, an increase of 87.39% year on year. The first quarter of 2024 achieved revenue of 6.181 billion yuan, an increase of 2.75% year on year; net profit to mother was 561 million yuan, an increase of 13.26% year on year.

Supported by two major technology strategies, AIOT and IoT digital intelligence platforms, each business continues to be optimized and upgraded. The company's smart IoT products and solutions achieved revenue of 26.645 billion yuan in 2023, an increase of 5.79%; of these, the software business achieved revenue of 1.797 billion yuan, an increase of 21.59%; the company's innovative business achieved revenue of 4.907 billion yuan, an increase of 19.20% over the previous year. Based on in-depth understanding of the diverse needs of customers and years of experience in the field of smart IoT, the company continues to explore emerging businesses, including innovative businesses such as machine vision and mobile robots, smart living, thermal imaging, and automotive electronics, to continuously expand new rapid growth points for the company.

Maintain large-scale investment in R&D with technological innovation as the core. In 2023, the company invested 3,967 billion yuan in R&D, up 2.17% year on year, accounting for 12.31% of revenue. In addition to maintaining investment in traditional video technology, the company continues to strengthen research, development and commercialization in technical fields such as multi-dimensional perception, AI models, data intelligence, intelligent computing, cloud computing, software platforms, network communication, network security, and innovative business, deepening the “five full” capabilities, focusing on value business scenarios, and building industry-leading solutions, products and technology systems.

In 2023, the company released the Xinghan model, which greatly improved its visual analysis capabilities by integrating multi-modal data such as images, point clouds, text, and voice; the company established a new Future Communications Research Institute to build a “3+N” integrated connectivity system around the three aspects of network connection technology, data exchange technology, and cutting-edge network technology to support the upgrading of the Internet of Things to the Visual Network to achieve more reliable, more efficient, and more intelligent data processing and decision-making.

The marketing service system layout continues to be improved, and overseas business is progressing in an orderly manner. In 2023, the company's domestic revenue accounted for 52.43%, and overseas revenue accounted for 47.57%. Under the global business trend, the company promotes the layout of domestic and overseas marketing and service systems in an orderly manner to provide customers with full life cycle services such as product and solution consulting, design, sales, delivery and after-sales. By the end of 2023, domestic marketing centers will cover 100% of the provinces, municipalities and autonomous regions, 100% of prefecture-level cities, and more than 70% of districts and counties. Overseas marketing centers have set up 69 overseas branches, with products covering more than 180 countries and regions. The company has more than 1,000 service partners around the world and has set up more than 170 spare parts centers/spare parts stations.

Investment suggestions: Sensors, cameras, network infrastructure, big data, cloud and AI technology will be the key and core of AIoT. As a leading R&D platform-based enterprise, the company has accumulated a deep moat in the market, R&D, supply chain, etc., and the advantages of the company's platform will continue to be reflected. We expect the company's 2024-2026 EPS to be 1.16 yuan, 1.37 yuan, and 1.58 yuan respectively, and the closing price on April 30, 2024 will correspond to PE 15 times, 13 times, and 11 times, respectively, maintaining the “recommended” rating.

Risk warning: Market competition is intensifying, and innovative business development falls short of expectations.