Incident: The company released its semi-annual report for 2023. In the first half of 2023, the company achieved operating income of 227 million yuan, +19.36%; net profit of 225 million yuan, +178.26%; net profit after deducting non-return net profit of 119 million yuan, +499.52%. In a single second quarter, the company achieved operating income of 20 million yuan, -81.44% year-on-year; net profit of 32 million yuan, -534.07% of the same period; net profit after deducting non-return net profit of -37 million yuan, -1131.35% year-on-year.
Key points of investment:
Outstanding Q1 delivery contributed to a high overall performance increase in the first half of the year. Since the company's current main customer is power grids, they are greatly affected by grid bidding and project confirmation progress, and R&D, management, etc. expenses are also smooth and rigid expenses, so revenue and profit fluctuate greatly in a single quarter. In '22, some of the company's operating income was affected by the external objective environment and did not meet the revenue recognition standards. It was confirmed in 23Q1, which led to a high increase in the overall performance of 23H1. 23Q2 performance declined sharply, but since the company's historical performance fluctuated greatly in a single quarter, and revenue was mainly concentrated in the 3rd and 4th quarters, we don't think there is any need to worry too much about the annual situation due to fluctuations in performance in a single quarter.
Product gross margin has increased, and we expect H2's business outside of the province to contribute to performance. 23H1, the company's gross margin was 55.93%, +4.85pct; net margin was 10.84%, +6.19pct. The company is guided by customer needs, driven by innovation, and continues to innovate technology and product updates and iterations to maintain high profit levels. The rise in gross margin confirms the effectiveness and viability of the company's strategy. The company continued to increase R&D investment. The 23H1 R&D cost rate was 23.99%, with a year-on-year rate of -1.89 pct, but the absolute value of R&D expenses rose from 49 million yuan to 54 million yuan. 23H1's revenue share in Zhejiang Province reached 90.41%. Given that the average share of the company's revenue from outside the province over the years from 2020 to 2022 was 40.47%, which already accounts for a considerable amount of volume, we think it is possible that orders from outside the province have not been implemented and that the company's 23Q2 is weak. Combined with the company's historical situation and the trend of digitization and intelligence of power systems, we believe this factor is expected to improve markedly in the second half of the year.
The general trend is for robots to accelerate applications, and they are optimistic that the rail transit business will create a second growth point. The company's product application fields are expanding from power grids to rail transit, oil and gas chemicals, etc. As the scale of rail transit construction grows, the problems of aging rail transit equipment and insufficient operation and maintenance personnel are becoming more and more prominent. It is a blue ocean market where inspection robots are expected to develop. The company's products have been tested on site by many target customers such as Hangzhou Metro, Hanghai-Hai Intercity, Tianjin Metro, MTR, and Shanghai Shentong, etc., and obtained good feedback from customers. In 2022, the company successfully won bids for projects such as Hanghai-Intercity Railway, Hangzhou Airport Track, and Shanghai Rail, achieving zero breakthroughs in rail transit. Furthermore, the company has set up overseas companies and established cooperation with the China Railway Design Institute, and it is expected that the second rail transit curve will gradually be realized.
Profit forecast: The company's products have achieved a comprehensive “sea, land, air, and tunnel” strategic layout in the power sector, and are advancing from the three aspects of market, technology, and products. In the future, while maintaining steady growth in the power sector business, the company's product sales volume in the rail transit sector is expected to increase significantly, driving the company's performance to continue to grow. We maintain our profit forecast for the company. We predict that the company's net profit from 2023-2025 will be 210, 2.73, and 349 million yuan, respectively. The corresponding PE will be 19, 14, and 11 times, respectively, and the target price will be 47.76 yuan (35x in 2023), maintaining the “buy” rating.
Risk warning: the risk of increased market competition; the risk that power grid investment falls short of expectations; the risk that rail transit business development falls short of expectations; there may be a risk that the public information used in the research report may be delayed or not updated in a timely manner.