Performance preview
The 2023 earnings report is largely in line with expectations
The company released the 2023 annual performance report: in 2023, it achieved total operating revenue of 8.039 billion yuan, an increase of 5.57% over the previous year; net profit attributable to mother/net profit excluding net profit of 836/787 million yuan, an increase of 4.29%/1.41% year on year. We estimate that the company's net profit for 4Q23 was 494 million yuan, an increase of 28.99% over the previous year. The company's performance was basically in line with our expectations.
Key points of interest
The pace of revenue confirmation for the fourth quarter accelerated, and the single-quarter results showed impressive month-on-month results. In 2023, the State Grid plans to tender for digital projects in 3/5/7/10, but the actual bidding period was 7/8/9/11, and the overall process was delayed, so the company was unable to generate more effective revenue in the first three quarters. The company accelerated the pace of delivery and revenue recognition in the fourth quarter. The 4Q23 results were +28.99%/+432.38% year-on-month, respectively, with impressive results. According to our statistics, the total amount raised by the digital headquarters of the State Grid in 2023 was 8.231 billion yuan, +3.0% year on year. Of these, the total bid amount of the company won the bid amount was 1,478 billion yuan, +6.55% year on year, and the winning bid share was 18%, +0.59ppt year on year, ranking third. We believe that the company's online internal orders are sufficient, which is expected to support the steady growth of 24-year performance.
“Marketing 2.0” expands coverage and fully participates in the construction of a new power load management system for the State Grid. In 2023, the subsidiary CLP Prva completed the promotion of “Marketing 2.0” for 17 provincial companies including Shanghai and Shanxi. As of 2023, it has been launched in 19 provincial (municipal) companies including the State Grid in Henan, Mengdong, Hebei, and Jiangxi, and plans to complete the promotion and application of the remaining provincial and municipal companies in 2024. The subsidiary CLP Feihua participated in the entire construction process of the State Grid's new power load management system. Through research and development of unified collection components, two-level data transmission was achieved in real time from the headquarters+27 provincial companies. It has already been applied online at headquarters in Tianjin, Hebei, Liaoning, Tibet, Gansu, Shanxi, etc.
The State Grid focuses on the construction of a strong power grid using digital intelligence, and is optimistic that the company's business will fully benefit. The 2024 State Grid Working Conference i emphasized increasing the construction of strong digital intelligent power grids, integrating artificial intelligence, advanced information and communication technology, etc. around application scenarios such as digital distribution grids, new energy storage control, and vehicle grid interaction to build a number of digitally intelligent strong power grid demonstration projects, etc. We believe that as the leading digital company of the State Grid, the company is leading industries in power digitization products and services, cloud network infrastructure construction, etc., and is expected to fully benefit.
Profit forecasting and valuation
Due to delays in digital tendering, we lowered our 2023/2024 net profit by 7.2%/4.2% to 836 million yuan/1,018 million yuan, and introduced a profit forecast of 1,173 billion yuan for the first time in 2025. Considering the valuation shift, maintaining an industry rating and a target price of 19.60 yuan corresponds to 23.2 times the 2024 price-earnings ratio and 20.1 times the 2025 price-earnings ratio, with 35.3% upside compared to the current stock price.
risks
The implementation of digital tenders for power grids fell short of expectations, and a single major customer was too concentrated.