events:

the company released its 2023 annual report, in 2023 the company achieved revenue of 1.407 billion yuan, +56.61 percent year-on-year, the net profit attributable to the parent of 0.729 billion yuan, +52.01 percent year-on-year. Single Q4 realized revenue of 0.416 billion yuan, up 69.07% YoY, and net profit of 0.157 billion yuan, up 68.71% YoY.

core point of view:

medium and low power export performance is good, high power + cutting head products continue to release.

1) In terms of medium and low power, the revenue from medium and low power (follow-up + board) will reach 0.543 billion yuan in 2023, +25.33 year on year, accounting for 38.63. Low-and medium-power products are mainly used in hardware, lamps, doors, fitness equipment and other sheet cutting fields, with a high degree of macroeconomic correlation.

2023 to benefit from the high export of laser equipment, the company's low-and medium-power business to achieve steady growth. At present, the penetration rate of overseas laser is still low, and the high export business climate is expected to continue.

2) In terms of high power, high power (bus) revenue reached 0.327 billion yuan in 2023, +65.44 percent year-on-year, accounting for 23.27 percent; Cutting head revenue was 0.335 billion yuan, +96.73 percent year-on-year, accounting for 23.78 percent. High-power products are mainly used in ships, rail, aerospace and other thick plate cutting fields, the current laser equipment to replace plasma cutting and other traditional thick plate cutting methods of permeability is still in the stage of continuous improvement. From the technical level, the company's products can be directly benchmarked against foreign competing products, to achieve import substitution, from the sales strategy, the company by virtue of the "hardware and software" combination of trump card combination, through the cultivation of operators to use habits, enhance customer stickiness, accelerate the laser equipment core components of domestic substitution process. High-power laser equipment penetration continues to improve, under the domestic substitution logic, the company's high-power control system and cutting head business is expected to continue to release.

gross margin continued to improve, employee expansion + equity incentive fees led to a decline in net margin.

1) gross profit margin: 80.33 in 2023, +1.36pct year on year; Among them, the medium and low power is 83.65, compared with the same period of last year -2.07pct; High power 86.51, year-on-year +9.27pct, is the company's pull through hardware procurement platform to reduce procurement costs; The cutting head is 77.37, which is the localization of optical lenses and other parts by the company, and the scale effect is obvious.

2) Net interest rate: 53.55% net interest rate in 2023, YoY -1.22pct. The decline in net interest rate is due to the company's increased investment in research and development, expansion of new markets and equity incentive costs. In terms of the number of employees, in order to seize the development opportunities of the industry and strengthen the technical reserve, the company has increased its enrollment expansion. In 2023, the total number of employees was 864, an increase of 226 over the same period of last year, of which 108 were R & D personnel, accounting for 45%. On the cost side, in 2023, the company's research and development expense rate was 2.60pct YoY, sales expense rate was 1.21pct YoY, management expense rate was 1.37pct YoY, and financial expenses were 1.92pct YoY.

welding control system space is vast, optimistic about the welding business to open the growth ceiling.

1) market space: according to the industrial chain research, fillet weld accounts for about 15% of the steel structure welding process; Due to the non-standard characteristics of steel structure, the intelligent transformation of steel structure welding is completed when the penetration rate reaches 80-85% in the welding process. Assuming a long-term welding robot penetration rate of 80%, Honglu's total demand for steel welding robots is expected to reach 8000 units. According to the China Steel Structure Association data, 2022 China's steel structure production of 101.4 million tons, according to Honglu steel structure announcement, 2022 its steel structure product production of about 3.4954 million tons, then Honglu steel structure market share of less than 5%, that is, the steel structure field of the long-term demand for welding robots at least 160000 units. According to the calculation of 100000 yuan for a single set of welding control system, the market size of the long-term steel welding control system exceeds 16 billion yuan.

2) company progress: according to the company's annual report, the company continues to improve the development of process functions in the field of intelligent welding, adding a variety of swing actions such as l-shaped, triangular and crescent, and developing matching functions such as arc tracking, optimizing the setting of arc tracking parameters with the welding machine, and further improving the performance and stability of arc tracking limit. In the future, under the recognition of the company's product strength by leading customers, it is expected to have a demonstration effect on the company's subsequent welding control system release, we are optimistic about the new curve of welding business release.

investment advice:

it is estimated that the company's income from 2024 to 2026 will be 18.75/24.37/3.267 billion yuan respectively, with growth rates of 33.24, 29.98 and 34.08 respectively, net profit of 9.90/13.04/1.721 billion yuan respectively, with growth rates of 35.86, 31.68 and 32.01 respectively, and corresponding PE of 42X/32X/24X respectively, maintain a "buy-A" investment rating with a 6-month target price of $324.96, corresponding to a dynamic price-to-earnings ratio of 48X in 2024.

Risk Warning: The manufacturing boom is lower than expected, the market in the low-and medium-power field is at risk of shrinking, the localization process of the high-power market is less than expected or the company's development in this field is less than expected, the company's new product development and expansion progress is less than expected, and the penetration rate of welding robots is less than expected.