Event: State Grid ICT released its third quarter report. The first three quarters of 2023 achieved revenue of 3,939 billion yuan, -15.00% year-on-year, and net profit of 342 million yuan, -18.27% year-on-year. The third quarter achieved revenue of 1,114 billion yuan, -34.00% year-on-year, net profit of 93 million yuan, -50.73% year-on-year and -47.82% month-on-month.
The delay in digital bidding for the State Grid affects the pace of company revenue recognition, and confirmation is expected to accelerate in the fourth quarter: At the beginning of the year, the State Grid announced the centralized procurement batch schedule for the headquarters, which indicated that the State Grid plans to bid for digital projects in March, May, July, and October of that year, respectively. In the first half of 2023, the progress of digital bidding for the State Grid was lagging behind. The first and second batch of digital project tenders were issued in July and September, respectively, and the winning bid announcements were issued in August and October. As a result, the State Grid digitization project did not contribute to the company's performance in the first three quarters, putting pressure on the company's revenue and performance in the first three quarters.
Recently, the company released information on the second successful equipment bid for the State Grid digitization project. Among them, equipment (procurement of equipment such as servers, storage equipment and supporting equipment, network equipment, etc.) and services (services such as business center, ERP systems, etc.) won bids of 370 million and 273 million respectively. We believe that the delivery cycle for such standardized software services and hardware procurement is relatively short, and it is expected that confirmation will be accelerated in the fourth quarter. At the same time, subsequent batches are being tendered, and it is expected that earnings will be confirmed that year.
To consolidate the advantages of the power sector, in-network and off-network projects are progressing steadily: within the network; by the end of '22, marketing 2.0 had completed launch work in 6 provinces including Jiangsu, Zhejiang, Anhui, and Shandong, and has now entered the operation and maintenance stage. As of June '23, the promotion and launch of companies in 3 provinces including Shanghai and Shanxi has been completed, and it is planned to promote the completion of the launch of 9 other provincial companies in the second half of the year. Outside the Internet; CLP Puhua, a wholly-owned subsidiary of the company, recently won the bid for Inner Mongolia Electric Power (Group) Co., Ltd.'s next-generation marketing management information platform development and integrated implementation project, with a total bid amount of about 272 million yuan. CLP Pu Hua has completed the signing of the contract, and the project is still in the process of being implemented.
Start the construction of a new power load management system and consolidate the sustainability of growth: the company participated in the research and development of the new power load management system, carried out planning, design and platform construction, and constructed the State Grid headquarters and system construction tasks for companies in Tianjin, Hebei, Liaoning and other provinces. Among them, the unified collection components developed independently have been implemented and applied. At the same time, the company has completed the second phase of the new power load management system, reached preliminary cooperation intentions with power companies in eight provinces and cities including Tianjin and Shanxi, and carried out coordination and command capacity building contacts with power companies in Zhejiang, Hunan and other provinces to promote project implementation and implementation. In the context of the digital transformation of the State Grid, the new power load management system is expected to replicate the full rollout of the power marketing 2.0 system, thereby consolidating the sustainability of the company's future growth.
Profit forecasting, valuation and ratings: The delay in State Grid bidding affects the pace of performance confirmation. We lowered the company's 23E-25E net profit levels to 9.19/10.61/1,194 billion yuan respectively (previous value was 9.95/11.42/1,263 billion yuan, down 7.6%/7.1%/5.5% respectively), corresponding to EPS of 0.76/0.88/0.99 yuan and PE 18/15/14 times (stock price on October 31 was 13.79 yuan). Considering that the company is an important subsidiary of the State Grid, the State Grid's rapid deployment of virtual power plants and power digitalization guarantee that the company has plenty of orders and consolidates the stability of the company's future performance. We maintain the company's “buy” rating.
Risk warning: Digital investment in power grids falls short of expectations, and technological innovation and product iteration falls short of expectations.