Matters:
The company released its report for the third quarter of 2023. The first three quarters of 23 years achieved cumulative revenue of 1.06 billion yuan, +33.3%, net profit of 160 million yuan, +95.3%, net profit of 150 million dollars, net profit of 150 million dollars, +72.5% over the previous quarter; Q3 achieved revenue of 4.1 billion, +34.9%, -2.5%, net profit of 79 million yuan, +143% yoy, +143%, +22% month-on-month.
Commentary:
Expenses were stable during the period, and profitability continued to improve. The company's total expense ratio for the third quarter of '23 was 14.8%, a slight increase of 1.2 pcts, a year-on-year decrease of 3.3 pcts, a year-on-year decrease of 3.3 pcts, a gross profit margin of 37.7%, a year-on-year increase of 8.9 pcts, a year-on-year increase of 2.1 pcts, a net profit margin of 19.1%, a year-on-year increase of 8.5 pcts, and a year-on-month increase of 3.9 pcts.
The impact of impairment may have been largely eliminated. In 2021-2022, the company separately calculated asset impairment losses of 222/023 million yuan (mainly the goodwill impairment of the subsidiary Hubei Huawang Engineering) and credit impairment losses of 0.18/60 million yuan (mainly from the impairment of accounts receivable from the Chunhua wind power project). At the end of the year 22, the goodwill book value of the subsidiary Hubei Huawang Engineering was only 26 million yuan. In 23, it is expected that there will be no further calculation after the operation of the Hubei Huawang factory subsidiary has improved; at the same time, the company recorded credit impairment losses of 202 million yuan in a single quarter, a decrease of 0.02 billion yuan from Q2 At $118 million, the impact of subsequent credit impairment is expected to be minimal.
Benefiting from the construction of the main grid of the power grid, the company's bid amount on the State Grid increased markedly. According to the State Grid e-commerce platform, the total bid amount for the first four State Grid transmission and transformation equipment projects in 2023 has exceeded 22 years. The company won a total bid amount of 776 million yuan in the first four National Grid tenders, +81% over the same period (compared with the four tenders in the previous 22 years). Among them, combined electrical appliances, isolation switches and complete equipment won the bids of 507 million yuan, 112 million yuan and 157 million yuan respectively, +90%, +31%, and +105% respectively. Judging from the company's announcement caliber (mainly the State Grid), by the end of September 2023, the company's products had won a total of 81 million bids, an increase of 21% over the same period last year.
Investment suggestions: Changgao Electric has been deeply involved in electrical equipment for more than 20 years. The share of isolation switches is stable and ahead, and the combined electrical appliances have grown significantly. The competitiveness of other primary and secondary equipment products has continued to improve, market channels have gradually expanded, and the risk of impairment in the company's new energy-related projects may have basically been released, and the future growth path is clear. We expect the company's revenue for the year 23-25 to be 18.5/22.6/2.70 billion yuan, and net profit of 2.6/31/380 million yuan, corresponding to EPS of 0.42/0.50/0.61 yuan, respectively. We gave the company a 23x valuation of its 23-year performance, corresponding to the target price of 9.5 yuan, and maintained a “strong push” rating.
Risk warning: grid bidding or commencement of construction falls short of expectations; marketing of the company's new products falls short of expectations; price increases of raw materials weaken the company's profits.