Incidents:
On October 31, 2023, the company announced its 2023 three-quarter report. Q1-Q3 achieved operating income of 4,237 million yuan, an increase of 17.71% over the previous year; realized net profit of 521 million yuan, an increase of 18.90% over the previous year, and net profit of 518 million yuan after deducting non-return net profit of 518 million yuan, an increase of 21.82% over the previous year. Among them, Q3 achieved operating income of 1,367 million yuan, an increase of 13.07% over the previous year; net profit of 166 million yuan, an increase of 23.38% over the previous year, and net profit of 163 million yuan after deducting non-return net profit of 163 million yuan, an increase of 23.04% over the previous year.
Comment:
The steady investment in the power grid and the high increase in new energy installations have driven the company's performance to be steady, moderate and positive. Looking at the transmission and distribution business, grid investment from January to September 2023 was 328.7 billion yuan, an increase of 4.2% over the previous year. Moreover, the company's operation inspection and monitoring business continued to break through in many provinces and regions, so the growth rate was higher than the industry average. In terms of the new energy business, the new capacity of the wind power and photovoltaic industries from January to August 2023 was 28.93 GW (YOY +79.2%) and 113.16 GW (YOY +154.5%), respectively. The rapid growth of photovoltaic installations led to rapid growth in the company's secondary equipment business on the new energy side.
The company reduced costs and fees, and overall profit continued to improve. Looking at profit levels, the company's overall gross margin for the first three quarters of 23 years was 36.29%, up 2pct year on year; net profit margin was 12.33%, up 0.13pct year on year; Q3 in a single quarter, the company's gross margin was 36.69%, up 2.97pct year on year, net profit margin was 12.18%, up 0.99pct year on year. We believe that profits have improved due to the company's cost reduction and fee reduction, which is expected to continue in the future.
Restricted stock incentives bind to the core backbone, demonstrating the company's confidence in the future. In the third quarter, the company announced the Sailing 2 restricted stock incentive plan, which binds executives (12 people) and core technical backbone (450 people). The assessment targets are 25%, 65%, and 110% of the cumulative net profit growth rate for the years 23, 23-24, and 23-25 without a low base value (average net profit of 500 million yuan in years 21 and 22). We estimate that the cumulative net profit for the years 23, 23-24, and 23-25 was 6.2, 8.2, and 1.04 billion yuan, respectively. The company's restricted stock incentives bind core backbone interests, which are expected to maintain the stability of the company team and demonstrate the company's confidence in future performance growth.
The company continues to deepen its technological accumulation and has made breakthroughs in overseas business. Driven by technology and focusing on research and development, the company won the bid for the first 500kV secondary optimization demonstration project of the State Grid in Q3, developed products in emerging fields such as net-structured energy storage converters, renewable energy hydrogen power supplies, etc., and won the bid for projects in emerging fields such as testing superconducting magnetic energy storage converters and magnet protection devices. Overseas, the company signed a 500kv substation with Nausheira, Pakistan to further expand overseas ultra-high voltage grade projects, and also signed a Northern Luzon substation upgrade project with NGCP554VI in the Philippines. In addition, the company's SVG product also achieved a breakthrough in entering the Indian market for the first time. We believe that the company's technological accumulation continues to deepen the company's strengths, and that breakthroughs in overseas business are expected to lay the foundation for the company to open up global markets and achieve growth in overseas revenue.
Profit forecast and investment rating: We expect the company's revenue for 2023-2025 to be 67.65, 84.12, and 10.577 billion yuan, respectively, up 33.2%, 24.4%, and 25.7% year on year; net profit is 7.08, 8.66, and 1,017 billion yuan respectively, up 30.4%, 22.3% and 17.5% year on year, maintaining the “buy” rating.
Risk factors: grid investment falls short of expectations, raw material price fluctuations, grid construction progress falls short of expectations, increased market competition, etc.