The company is a one-stop EPCOS power service provider, and the profit level is expected to gradually improve. The company was established in 2007 in Changzhou, Jiangsu, to undertake the design outsourcing work of large-scale electric power design institutes, and then gradually completed equipment and construction qualifications to become EPCOS one-stop power service provider. Its business areas include new energy, energy storage, etc. On the financial side, the company's revenue is growing steadily, and profit levels are expected to improve. In Q1-Q3 2023, revenue of 1.87 billion yuan was achieved, up 24.62% year on year; net profit to mother was 203 million yuan, down 0.92% year on year. In terms of revenue structure, in 2023, H1 power engineering construction accounted for 55% (gross profit margin 22.78%), and power equipment sales accounted for 37% (gross profit margin 18.87%), contributing most of the company's revenue. We expect gross margin to gradually recover.
The new energy/energy storage industry continues to thrive, and virtual power plant construction is expected to accelerate. The company's business areas include new energy, energy storage, virtual power plants and other industries. In the photovoltaic industry, the continued introduction of favorable policies is expected to help the development of the photovoltaic industry; prices in all parts of the industry chain have declined rapidly since 2022Q4, falling module prices have driven the yield of power generation projects to continue to rise, and demand for photovoltaics is expected to continue to exceed expectations. In terms of industrial and commercial energy storage, the industry is currently in the early stages of development. We judge that 23 is expected to be the first year of development of industrial and commercial energy storage. The main reasons are that the economy of industrial and commercial energy storage is expected to improve dramatically in '23, including increasing price differences between peak and valley prices on the revenue side and improving timesharing prices; falling system costs on the cost side; and subsidies on the policy side. We expect industrial and commercial energy storage demand to reach 5.1, 10.4, and 18.7 GWh in 2023-2025. In terms of intelligent electricity use, smart distribution grid construction is the focus of power grid investment. Virtual power plants are an important direction for smart distribution grid construction and can effectively solve the problem of time misallocation. The two major infrastructures for virtual power plants are the construction or exploration of flexible resources and the construction of electricity markets. These two major infrastructures have recently been advancing at an accelerated pace. We estimate that the market space in the manufacturing and operation side of virtual power plants is expected to reach 69.52 billion yuan in 2025.
Distributed services reuse resources, and the collaborative development of the company's various businesses is expected to resonate. Distributed optical storage business barriers are similar, mainly resource, capital, and channel barriers. Resource barriers are largely related to the province where the company is located, and capital/channel barriers reflect the company's size/first-mover advantage. Industrial and commercial energy storage has a similar customer base to distributed photovoltaics, so it has customer/channel reuse. On the company side, 1) The company has extensive experience in distributed photovoltaic EPC and is deeply involved in EPCOS integrated services for industrial and commercial customers, and collaboration across the EPCOS industry chain is scarce in the industry. Recently, distributed photovoltaic orders have continued to break through, and it is expected to drive the energy storage business to start up in the future. 2) The company's power qualifications are perfect, and the power design business establishes new energy business development channels. 3) The company builds the “Electric Man” comprehensive smart energy service platform, integrates optical storage resources, and lays out virtual power plants. “Electric Man” helps guide and manage downstream users, and can increase user stickiness. 4) Steady production expansion lays the foundation for growth, and expansion outside the province increased. In H1 in 2023, the company's business outside Jiangsu Province accounted for nearly 30%. The business area covered Anhui, Zhejiang, Hunan, Inner Mongolia, Guangdong, Shandong, Shaanxi, Henan and other provinces.
Profit forecast and valuation: We estimate that the overall revenue for 2023-2025 was $2,847/41.24/5.369 billion yuan, up 21%/45%/30% year on year; net profit to mother was 3.29/4.95/656 million yuan; corresponding PE was 20/13/10 times, referring to comparable company valuation levels, and covered a “buy” rating for the first time.
Risk factors: risk of macroeconomic and market fluctuations, increased market competition, risk of entry of foreign competitors, fluctuation in raw material prices and supply risk, risk of receipt falling short of expectations.