Incidents:
On August 30, Dongfang Electric released its semi-annual report for 2023:2023H1 achieved revenue of 29.92 billion yuan, +7.2% year on year, realized net profit of 2.0 billion yuan, +12.85% year on year; 2023Q2 achieved revenue of 15.2 billion yuan, +10.1% year on year, and achieved net profit of 980 million yuan, +15.9% year on year.
Key points of investment:
Clean and efficient energy equipment+engineering trade business drives the company's 2023H1 revenue +7% year-on-year.
2023H1's revenue was 29.92 billion yuan, +7.2% year-on-year. Among them, revenue from renewable energy equipment/clean and efficient energy equipment/engineering and trade/modern manufacturing services/emerging growth industries was 81/183/68/28/6.2 billion yuan, respectively, -15%/+21%/+33%/+2%/+3%.
The increase in revenue from the engineering trade business may be related to the end of the epidemic and the resumption of order acquisition and execution.
The engineering and trade, and modern manufacturing services industries contributed to the main increase in profit by 2023H.
1) The profit growth rate of the 2023H1 company was 13%, higher than the revenue growth rate, and the engineering, trade, and modern manufacturing services industries contributed mainly to the increase. The total net profit of 2023H1's equipment business subsidiaries (boilers, steam turbines, generators, wind power companies, etc.) was 1.25 billion yuan, -10.3% year-on-year, mainly because Dongfang Turbines/Dongfang Boiler's net profit was -11.4%/-5.7%; the net profit of the non-equipment business was 850 million yuan, +79%. We believe that the engineering, trade, and modern manufacturing services industries mainly contributed to the increase in non-equipment business profits.
2) By business, the operating profit of renewable energy equipment/clean and efficient energy equipment/engineering and trade/modern manufacturing services/emerging growth industries was 8.6/17.6/10.5/12.9/70 billion yuan, respectively, -14%/+15%/+92%/+61%/-18%. Among them, engineering, trade, and modern manufacturing services accounted for 41.4% of total operating profit in 2023H1, +12.8pct.
Furthermore, the profit margin of the engineering, trade, and modern manufacturing services industry is higher than the company's overall level, so the rapid increase in profit has driven the company's gross margin of +1.0 pct to 17.4% year-on-year in 2023H1.
Orders for clean and efficient energy equipment were +87% year-on-year, which is expected to guarantee the company's high performance in 2024.
2023H1 added 48.9 billion yuan in effective orders, +33.3% over the same period last year. Among them, orders for clean and efficient energy equipment/renewable energy equipment/engineering and trade/emerging growth industries/modern manufacturing services were 210/116/57/61/45 billion yuan, respectively, compared with +87%/+8.0%/+87%/+4.5%/-23%. The increase in clean and efficient energy equipment orders may be mainly contributed by coal-fired power generation engines.
Net operating cash flow decreased as a result of finance companies' financial interbank business. The net operating cash flow of 2023Q2 was 340 million yuan, a decrease of 94% from the 6 billion yuan in 2022/Q2. It was mainly the outflow of financial interbank business carried out by affiliated subsidiary finance companies. Specifically, cash for purchasing goods and receiving labor payments increased 4.7 billion yuan year on year, while cash payments related to other business activities increased by 1.37 billion yuan year on year. The net cash amount from 2023Q2 investment activities was 2.1 billion yuan, an increase of 10.3 billion yuan over the previous year, mainly because the net inflow of affiliated finance companies invested in interbank deposits and other businesses increased year-on-year, and the cash received in response to recovered investments increased by 9.1 billion yuan over the same period last year.
Profit forecast and investment rating: We expect the company's net profit from 2023-2025 to be 3,91/50.1/5.81 billion yuan, respectively, and PE 14/11/9 times, respectively. The high increase in orders in the clean energy equipment sector is expected to drive the company's orders to grow rapidly, and the company's performance is expected to maintain its “buy” rating.
Risk warning: Risk of policy changes; sharp rise in coal prices; sharp decline in electricity prices; power supply installations fell short of expectations; industry competition intensified; prices of the three major mainframe companies fell short of expectations; tenders fell short of expectations.