Incidents:
On the evening of April 27, the company released its 2022 annual report and the report for the first quarter of 2023: the company achieved revenue of 1,262 million yuan in 2022, an increase of 3.04% over the previous year, and achieved net profit of 101 million yuan, an increase of 116.59%; Q1 of 2023 achieved operating income of 179 million yuan, an increase of 43.87% over the previous year, and achieved net profit of 0.2 billion yuan after deducting non-return mother's net profit of 0.2 billion yuan, an increase of 1040.64% over the previous year.
Comment:
With the introduction of state-owned controlling shareholders, operating efficiency improved markedly
In 2022, Shenzhen Smart City Technology Development Group Co., Ltd. (a directly managed enterprise wholly owned by the Shenzhen State-owned Assets Administration Commission) completed the equity transfer and subscription through a fixed increase method, becoming the new actual controller of Hengshi Technology.
The introduction of state-owned assets has enhanced the competitiveness of Hengshi Technology in the bidding process for power plant projects and has also relieved its financial pressure. In terms of customer introduction, in 2022, the company developed new design and technical service projects such as China Tower Group, Hainan Mobile, Beijing Tower, Guangxi Tower, etc., and won bids for provincial framework communication technology service projects such as Liaoning Mobile's 5G design and Shandong Mobile transmission network design through active efforts. Digital energy related projects such as the construction, development and implementation of a new source-load polymerization interactive response system for the smart energy integrated service platform of the State Grid Hunan Electric Power Co., Ltd. have been implemented. In terms of efficiency improvement, in 2022, the share of the company's sales and management expenses in revenue fell 0.7 and 1.28 percentage points, respectively; the overall three-fee rate decreased by 1.75 percentage points to 13.61%; net sales interest rate increased 18 percentage points year over year, turning a loss into a profit, to 2.85%. In Q1 2023, the share of the company's sales, management, and financial expenses in revenue decreased 3.1 and 3.5 percentage points, respectively; the overall three-fee rate decreased by 6.22 percentage points to 25.00%; and the net sales margin increased 14.88 percentage points year on year to 11.15%.
Provincial power grid transmission and distribution price policy reform in the third regulatory cycle. The trend of virtual power plants is rising. On May 9, the NDRC issued the “Notice of the National Development and Reform Commission on Provincial Grid Transmission and Distribution Prices and Related Matters in the Third Supervision Cycle”, which further split transmission and distribution prices, making it clear: “Electricity prices for industrial and commercial users are composed of feed-in tariffs, transmission and distribution costs, system operating costs, government funds and add-ons”. The separate listing of system operating costs is conducive to guiding industrial and commercial electricity prices to develop in a more reasonable and marketable direction. As a leading manufacturer of virtual power plants, Hengshi Technology is expected to fully benefit from the market expansion brought about by the transmission and distribution price reform.
Investment advice and profit forecasting
As the popularity of the virtual power plant industry increases, the company's customer introduction rate will continue to accelerate, and the company's operating efficiency will continue to improve after the addition of state-owned assets. It is estimated that in 2023-2025, the company's operating income will be 1,496 billion, 1,738 billion yuan, and 2,013 billion yuan respectively; net profit returned to the mother is 0.76, 109 and 156 million yuan respectively, and the corresponding PE valuations are 54, 38, and 26x respectively. Maintain a “buy” rating.
Risk warning
The development of the virtual power plant industry fell short of expectations, and the synergies generated by mergers and acquisitions fell short of expectations.