Incidents:

The company released its annual report for '22 and the quarterly report for '23, achieving revenue of 1,166 million yuan in '22, +8.53% year on year; Guimu's net profit was 48 million yuan, +52.55% year on year. 23Q1 achieved revenue of 210 million yuan, +15.28% year on year; Guimu's net profit was 102 million yuan, turning a loss into a profit over the previous year.

Multiple measures have reduced costs and increased efficiency, and profitability has improved markedly

The company adopted various measures to reduce costs and increase efficiency. The consolidated gross profit margin in '22 was 24.35%, +2.07pct year on year; net interest rate was 3.94%, +1.28pct year on year; 22Q4 gross profit margin was 29.66%, +6.28pct year on year. The first quarter of '23 continued to maintain its historically good single-quarter profitability. 23Q1 gross profit margin was 27.8%, +12.35pct over the previous year. The company is expected to further maintain a good level of profitability in the subsequent energy storage and charging/switching business market development process with the cost control capabilities accumulated in the power equipment industry over the years.

The charging and switching business is rapidly expanding, and the market continues to be developed

In '22, the company's charging and switching business revenue was 222 million yuan, +68.25% year on year; sales of charging stations were 27,150 units, +81.7% year on year; charging stations operated 63.72 million kilowatts of charge, +15.31% year on year, and revenue +32.76% year on year. The domestic market won the bid for the South Grid charging pile project for the first time, completed the commissioning of 3 heavy truck power exchange stations, and cooperated deeply with Luoyang Public Transport Group to explore the Luoyang public charging market; overseas markets actively promoted European standard certification of products and expanded overseas business orders through customer channels, agents, etc. We believe that the company's subsequent development of the overseas charging pile market is expected to continue to drive high sales and further increase gross profit margins.

Energy storage business orders have been landed one after another, and production capacity construction has accelerated

The company accelerated the layout of the new energy business, signed more than 60 million yuan energy storage system and integrated optical storage contracts; signed strategic cooperation agreements with companies such as Ronghe Yuan Storage and Jiangsu Baolong Equipment, which are affiliated with China Power Investment, involving 680 million yuan of 80MW wind storage integrated system integration projects. The company is speeding up the construction of a 4 GWh energy storage pack production line and an annual output of 500 MW inverter production line to meet market demand and ensure high-quality delivery of manual orders and new orders, which is expected to form a new growth curve that will support the rapid development of the company's subsequent performance.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2023-25 to be 25.22/41.92/5.699 billion yuan respectively. The corresponding growth rate will be 116.27%/66.25%/35.95% respectively, and the net profit of the parent will be 1.68/286/468 million yuan respectively. The corresponding growth rate will be 248.85%/69.96%/63.76%, the three-year CAGR will be 113.3%, EPS will be 0.20/0.35/0.57 yuan/share respectively, and the corresponding PE will be 25/14/9 times respectively. Referring to comparable company valuations, we gave the company 35 times PE for 23 years, with a target price of 7.11 yuan. Maintain a “buy” rating.

Risk warning: production capacity fell short of expectations; charging piles went overseas fell short of expectations; industry competition intensified.