2023 results are in line with our expectations
The company announced its 2023 results: revenue of 5.75 billion yuan, +13.24% year over year; net profit to mother of 630 million yuan, +15.46% year over year; net profit without return to mother was 6.2 billion yuan, +17.77% year over year. Among them, 4Q23 revenue was $1.51 billion, +2.4% YoY; net profit to mother was $106 million, +1.1% YoY. The company's 2023 results were largely in line with our expectations.
Both the Internet and the Internet are growing, and there are plenty of orders in hand. By sector, 1) In-grid business: In 2023, the company maintained the second place in the market share of secondary power transmission and transformation equipment of the State Grid. At the same time, it expanded its product range on the distribution network side. The first and second integration of standardized environmentally friendly gas ring network cabinets, SF6 ring network cabinets, etc. passed special tests on the national grid. It is expected that it will continue to benefit from accelerated investment on the distribution grid side in the future. The company's power grid automation segment had revenue of 2.92 billion yuan, +11.01% year over year, gross profit margin of 41.89%, and +1.98ppt year over year. 2) Off-grid business: The company won bids for new energy projects such as Kubuqi, Shagehuang, etc., and continues to maintain its leading position in large base projects, while winning bids for several new thermal power and hydropower projects. In 2023, the company's power plant and industrial automation segment revenue was 2.49 billion yuan, +11.55% year-on-year, and gross margin was 27.54%, +2.77ppt compared to the same period last year.
Profitability and profit quality are excellent, and dividends remain high. The company's profitability increased significantly. The gross margin increased 2.4 ppt to 33.6% year on year, and the sales/management/R&D/finance expenses ratio was -0.1 ppt /+0.4 ppt /+1.0ppt, respectively. Among them, the increase in management expenses was mainly due to the company's confirmed equity incentive expenses, and the net margin was +0.2ppt to 10.9% year over year. The company's net cash flow from operating activities in 2023 was $1,233 million, +73.63% year-on-year. The cash dividend was 499 million yuan, accounting for 79.62% of net profit attributable to mother. At the same time, the company maintained a high dividend. At the same time, the company's undistributed profit exceeded 1.5 billion yuan. We are optimistic about the company's long-term development potential and shareholder returns.
Development trends
The State Grid proposed a strong power grid using digital intelligence, and distribution grid policies to promote the development of industry prosperity. The State Grid proposed continuing to increase the construction of intelligent and strong power grids1. We expect investment in grid construction to be around +10% compared to the same period in 2024. Recently, the National Development and Reform Commission and the Energy Administration issued the “Guiding Opinions on the High-Quality Development of Distribution Grids under the New Situation” 2 to further clarify the direction of distribution grid development. We believe that intelligent distribution networks may become the direction of policy sentiment, and we are optimistic that the company will fully benefit from the increase in industry prosperity.
Profit forecasting and valuation
Due to the slowdown in installed capacity growth in the new energy industry and changes in the State Grid secondary equipment bidding competition, we lowered our net profit for 2024 by 14.0% to 728 million yuan, while introducing a profit forecast of 858 million yuan for 2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 18.6x/15.8x. Considering the upward shift in the industry valuation center, maintaining an outperforming industry rating and a target price of 18.22 yuan, corresponding to 20.8 times the 2024 price-earnings ratio and 17.7 times the 2025 price-earnings ratio, there is 12.0% upward room compared to the current stock price.
risks
Investment in power grids fell short of expectations, new energy installations fell short of expectations, and industry competition intensified.