The growth rate of revenue and net profit was slightly lower than expected. Recently, China Xidian released the 2023Q1-3 financial report. The company's 2023Q1-3 achieved revenue of 13.82 billion yuan, a year-on-year increase of 3.49%. Among them, 2023Q3 achieved revenue of 4.475 billion yuan, a year-on-year decrease of 4%, a year-on-year decrease of 3.3%, and realized net profit of 521 million yuan, a year-on-year increase of 10.81%. Among them, 2023Q3 achieved net profit of 994 million yuan, a year-on-year decrease of 57.8%. The profit level was slightly lower than expected in the interim report.
Expenses remained stable during the period, and management expenses declined. The 2023Q1-3 company's expenses rate for the period was 13.1%, with a sales expense ratio of 4.63%, a year-on-year increase of 0.71 pct, a year-on-year decrease of 8.21%, and a year-on-year decrease of 0.34pct. The main reason is that after the company optimized the personnel structure, the total remuneration of managers and employees decreased year-on-year, and the financial expenses rate rate was 0.26%, an increase of 1.06 pct. The main reasons were the year-on-year decline in interest income due to a decrease in external fixed-term and structured deposits, and the exchange losses increased year-on-year by Xidian International due to the opposite direction of the US dollar exchange rate. The three rates were higher Stable.
Investment in R&D was increased, and R&D expenses increased 4.94% year over year. The R&D expenses of 2023Q1-3 company were 439 million yuan, an increase of 4.94% over the previous year. The company has formed a deep historical accumulation in the field of UHV transmission and distribution equipment manufacturing and has built a strong technical foundation. During the reporting period, 6 national key R&D projects were carried out according to plan. The 190kA high-capacity generator circuit breaker passed all type tests, and the ±800kV rubber-impregnated paper-impregnated capacitive converter bushing passed high-altitude tests in Tibet. New breakthroughs have been made in core technology.
The share of winning bids for UHV core equipment has increased dramatically. Since 2023, the company has participated in the bidding for 5 UHV projects, with great results. Among them, in the Jinshang-Hubei and Ningxia-Hunan ±800kV UHVDC transmission engineering equipment tenders, the company's eight subsidiaries won a total bid of 4.739 billion yuan. The winning shares of the converter transformers and converter valves were 38.1% and 45.6% respectively, ranking second and first respectively, and the level of technology and service was continuously recognized by the State Grid.
Construction of “5 direct and 2 crossings” is expected to begin in 2023, which is expected to fully benefit from the acceleration of UHV construction. The Jinshang-Hubei, Longdong-Shandong, Hami-Chongqing, and Ningxia-Hunan DC UHV projects have already started. It is expected that 5 DC UHV and 2 AC UHV will be started throughout the year. Looking ahead to the 15th Five-Year Plan period, it is expected that 3-4 DC UHV will be started every year, and industry prosperity will continue until the 15th Five-Year Plan period.
Profit forecast and investment advice: According to the company's winning bid for UHV and main network equipment and delivery was slightly lower than expected, we lowered the company's revenue. We expect the company to achieve operating income of 197.3/248.5/30.93 billion yuan in 2023-2025, respectively, a decrease of 5.8%/11.2%/16.2%, respectively, and realized net profit of 7.41/10.2/1,318 billion yuan respectively. According to the DCF model, we lowered our target price from 6.61 yuan/share to 5.71 yuan/share, maintaining the “superior to market” rating.
Risk warning: 1. Power grid investment falls short of expectations; 2. Intense market competition has led to a sharp drop in gross margin; 3. Raw material prices have risen sharply.