Matters:
The company released the three-quarter report for 2023: during the reporting period, the company achieved operating income of 1,872 million, net profit of 203 million, net profit of 203 million, -0.92% year-on-year; in Q3 alone, it achieved operating income of 652 million, +7.03% year-on-year, and net profit of 65 million yuan, 33.41% year-on-year.
Commentary:
The decline in gross margin affected profits, and the actual controller proposed to buy back shares. The company achieved operating income of 1,872 million yuan in 2023Q1-Q3, +24.62% year-on-year, net profit of 203 million yuan, -0.92% year-on-year. We believe that the decline in performance is mainly due to a decline in gross margin and an increase in the share of business outside the province. On a quarterly basis, the year-on-year growth rate of Q1-Q3 revenue was +42.79%, +31.44%, and +7.03%, respectively. The year-on-year growth rate of net profit was +127.64%, -35.47%, and -33.41%. We think it is possible that the pace of project revenue confirmation caused the existence of quarterly results between quarters Volatility. According to the announcement, Mr. Shi Xiaobo, chairman of the company, proposed to buy back some of the company's shares through centralized bidding transactions, and to use the repurchased shares for employee stock ownership plans or equity incentives in the future. The repurchase amount is about 300 million to 60 million yuan.
Profit margins were under pressure, and rates and cash flow improved year over year. In 2023, Q1-Q3 gross profit margin was 21.52%, y-6.04pct, single-Q3 gross profit margin 19.08%, y-11.04pct. The rate for the first three quarters was 9.69%, -1.89pct year on year. Looking at each item, management fees, R&D rates, sales rates, and financial rates were -0.80pct, -0.56pct, -0.51pct, and -0.02pct. Income from changes in fair value increased 66 times year-on-year to $24 million, mainly due to accruing interest on unexpired wealth management products. Credit impairment losses and asset impairment losses totaled $0.2 billion, a year-on-year decrease of $08 million. The net profit margin was 10.97%, y-2.64pct. In terms of cash flow, net operating cash flow for the first three quarters was -228 million yuan, +138 million yuan year-on-year, mainly due to accelerated project repayments, with a revenue ratio of +3.51pct to 86.08% year-on-year. Accounts receivable and notes were $1,673 million, up 6.29% from the beginning of the year.
Build EPCOS one-stop power services and deepen the industrial chain layout: 1) Power consulting and design business (E):
According to the announcement, the company has obtained design grade A qualification this year, and the qualification gap with leading enterprises (mostly central state-owned enterprises) has been further narrowed; 2) Power equipment supply (P): a new 160,000 square meter smart equipment production base, which is expected to add 292,000 units/year of circuit breakers and 23,000 units/year of medium and low voltage complete cabinet production capacity; 3) Deepen the industrial chain layout: reached a strategic cooperation with Ruipu Lanjun to cooperate in energy storage, technology and supply chain. It is estimated that the four-year battery procurement volume for 2023-2026 will be 500 MW each. h, 1000mwh, 2000mwh, 3000mwh; 4) Accelerate product development: According to the company's fixed increase project, the company plans to build a new R&D center for PCS and circuit breaker research and development. It is expected that after successful self-sufficiency in R&D, gross margin is expected to improve.
Profit forecast and investment advice: Considering that the recovery in downstream demand falls short of expectations and that market competition is fierce, we adjusted the company's 2023-2025 EPS to 1.45, 1.71, and 2.09 yuan/share (original values were 1.88, 2.32, and 2.90 yuan/share), corresponding to PE 22x, 18x, and 15x. The company's new sectors such as power equipment and distributed photovoltaics are progressing well, and expanding smoothly from other locations. According to the segmentation valuation method, the company was given a target market value of 7.6 billion yuan for 2023, corresponding to a valuation of 25.6x, and adjusted the target valuation to 37.1 yuan, adjusted to the “Recommended” rating.
Risk warning: The expansion situation outside the province fell short of expectations, the collection of accounts receivable fell short of expectations, and the industry's low price competition increased the risk.