Jinguan Electric released the 2022 annual report and the first quarter report of 2023: the company achieved operating income of 606 million yuan in 2022, an increase of 13.99% over the previous year; achieved net profit of 79 million yuan, an increase of 14.02% over the previous year; 2022Q1 achieved operating income of 86 million yuan, an increase of 20.79% over the previous year; and achieved net profit of 8.95 million yuan, an increase of 306.21% over the previous year.

Key points of investment

Operation was steady in 2022, and 2023Q1 performance exceeded expectations

In 2022, the company achieved operating income of 606 million yuan, an increase of 13.99% over the previous year; achieved net profit of 79 million yuan, up 14.02% year on year; gross margin was 29.74%, down 1.17pct year on year; net interest rate was 13.01%, the same as 13.00% in the same period last year; the cost rate for the period was 13.09%, a year-on-year decrease of 2.90pct. Among them, the sales/management/finance/R&D expenses ratio decreased 0.68/0.96/0.24/1.02pct, respectively.

2022Q1 achieved operating income of 86 million yuan, an increase of 20.79% over the previous year; it achieved net profit of 8.95 million yuan, an increase of 306.21% over the previous year, mainly due to a sharp increase in high-margin lightning arrester revenue over the same period last year; gross margin was 32.94%; and net profit margin was 10.41%.

UHV construction is speeding up, and the growth of lightning arresters is highly certain

In 2022, the company's lightning arrester products achieved sales revenue of 219 million yuan, a year-on-year decrease of 7.7%; gross margin was 37.8%, a year-on-year decline of 5.8 pct, mainly due to delays in UHV construction and a decrease in the company's high-margin UHV lightning arrester shipments compared to the same period last year. In 2022, the State Grid tendered for 3 key 1000kV AC UHV projects. Among them, the company won the largest bid for the Fuzhou-Xiamen and Zhangbei-Shengli projects. The cumulative winning amount reached 29.17 million yuan, achieving revenue of 32.84 million yuan for UHV lightning arresters throughout the year, with a gross margin of 56.02%.

Looking ahead to 2023, the State Grid's UHV investment is expected to exceed 100 billion yuan. It is expected that “5 straight 2 switches” will be approved and “6 straight 2 switches” will be started, and the scale of UHVDC construction is expected to reach an all-time high. In the State Grid's first UHV equipment tender this year, the company's two packages of lightning arresters totaled 44.36 million yuan, ranking first in the quantity/amount of lightning arrester tenders. The winning bid amount has already exceeded the full year of 2022, and there is strong certainty that the annual increase will increase.

A breakthrough was achieved in the new energy market, and commercial storage+charging piles resonated upward to focus energy storage on the commercial and commercial saving+incremental power distribution market. In 2022, the company's energy storage system achieved sales revenue of 74.47 million yuan, with a gross margin of 30.1%, far exceeding the industry average. With the exception of batteries, BMS, and fire air conditioning, the company's energy storage systems are all self-made. It has a battery pack production line, which mainly provides energy storage equipment and systems for industrial and commercial energy storage and incremental power distribution projects in industrial agglomeration areas. The company will continue to expand the market in 2023.

Charging stations have achieved a breakthrough in the county market. In 2022, the company's charging stations and supporting boxes achieved sales revenue of 107 million yuan, and charging stations achieved sales revenue of 61 million yuan, an increase of 531% over the previous year, with a gross margin of 34.2%. The company's charging pile business focuses on the charging market in Henan County. In 2022, the subsidiary Jinguan Intelligence and related parties jointly won bids for public charging service infrastructure projects for new energy vehicles in Tongbai, Fangcheng, Tanghe and other counties. The company won bids for charging piles and supporting box conversion equipment amounting to about 185 million yuan, and the company will continue to expand the market in 2023.

Ceramic substrates are expected to be replaced by domestic ones. Ceramic substrates are widely used in power electronic devices, especially IGBT packages. Currently, domestic middle and high-end ceramic substrates are basically imported. The company focuses on high-end aluminum nitride and silicon nitride ceramic substrates (DBC, AMB) for high-power IGBTs. Currently, a R&D team has been set up, an R&D platform has been set up, and development experiments and sample prototyping have begun.

Profit forecasting

It is predicted that the company's revenue for 2023-2025 will be 814, 10.48, and 1,243 billion yuan respectively, and the EPS will be 0.98, 1.38, and 1.65 yuan respectively. The current stock price corresponding to PE is 19.0, 13.5, and 11.2 times, respectively, giving a “buy” investment rating.

Risk warning

The risk of winning the bid for a lightning arrester falls short of expectations; the risk of energy storage demand falling short of expectations; the risk of charging pile renewal falling short of expectations; the risk of rising raw material prices; and systemic risk in the general market.