Deeply involved in the MRO intensive supply business and continued development based on power grids: the company is deeply involved in the MRO intensive supply business for tools and instrumentation products. Currently, the business mainly serves the power grid industry, and is actively expanding the fields of petroleum and petrochemicals, transportation, nuclear power, emergency response, etc. Furthermore, the company has gradually developed its own industry and technical service business, and has R&D and production capacity for its own products. The company intensively provides tools and instrumentation MRO in 12 categories and more than 390,000 SKUs for downstream customers. At the same time, the company also has relevant technical service capabilities, which can provide customers with specialized technical services such as electrical equipment information collection, health condition evaluation, and product maintenance.
The MRO procurement market is growing steadily, and there is broad space for intensive and digital procurement: the market space of China's MRO procurement industry increased from 1.41 trillion yuan in 2017 to 2.57 trillion yuan in 2020, and the market size has maintained a relatively rapid growth. Globally, the MRO market size forecast for 2021 is expected to reach US$671.4 billion, and is expected to grow to US$718.4 billion in 2025. The industry will maintain steady growth. The MRO intensive and digital procurement model conforms to the characteristics of MRO and helps buyers reduce costs and increase efficiency. Currently, intensive procurement of MRO products has spread rapidly in power grids, railways and other fields, and the future market space is broad.
Strong supply chain capacity, independent production enhances profitability: The company has established a strong supply chain system and a sound sales service network. It already has a large number of SKUs, has a high degree of adhesion with suppliers, and has certain competitive barriers, providing a strong guarantee for promoting the company's performance growth. The company gradually developed R&D and production capacity for its own products. In 2021, the company's independent products accounted for 18.2% of revenue, and gross margin was 56.9%, far higher than the gross margin level of 34.9% of distributed products. As the company continues to promote its own products, the company's profitability is expected to increase further.
Profit forecast and rating: We expect the net profit of Xianheng International in 2022, 2023, and 2024 to be 225 million yuan, 282 million yuan, and 352 million yuan respectively. The corresponding EPS is 0.56, 0.71, and 0.88 respectively. Considering Xianheng International's leading industry position and strong supply chain capabilities, we gave the company 25X PE 2023, corresponding target price of 17.63 yuan, coverage for the first time, and gave it a “buy” rating.
Risk warning: Relying on risk in the power industry and power grid companies, the risk of repeated domestic epidemics, the risk of increased market competition, and the risk of seasonal fluctuations.
