Key points of investment
Incident: The company released its 2023 annual report, achieving revenue of 5.75 billion yuan, +13% year on year; net profit to mother of 630 million yuan, +15% year over year; net profit after deducting non-return to mother was 620 million yuan, +18% year over year. Among them, 23Q4 revenue was 1.51 billion yuan, +2% YoY, +11% month-on-month; Q4 net profit margin 6.98%, YoY -1%, YoY -36%; 23-year gross profit margin 34.44%, Q4 +2.29pct, Q4 gross profit margin 29.26%, YoY +2.31pct, YoY -7.44pct; Y23 net profit margin 10.91%, YoY +0.21pct; Q4 net profit margin 6.98%, YoY -0.09pct, YoY -5.17pct. We expect expenses related to the first phase of the company's shareholding plan and the second phase of equity incentives to be about 45 million yuan, and the annual operating profit is about 670 million yuan, +24% over the same period last year. The performance is in line with market expectations.
The old and new main networks are working together twice, and power distribution products continue to open up new markets. In '23, the company's power grid automation achieved revenue of 2,924 billion yuan, +11% year-on-year, gross margin of 41.89%, and +1.98pct year-on-year. 1) On the main network side, the company's share in the traditional secondary sector fluctuated slightly in '23, but the first batch of shares returned to second place in '24, and the position was stable. At the same time, the company made efforts in fields such as next-generation centralized control stations and digital twin smart substations to expand the secondary business layout of the main network. 2) On the power distribution side, the first and second integration of standardized environmentally friendly gas ring network cabinets, SF6 ring network cabinets, etc. passed the national grid special inspection, and the accelerated distribution network investment+ new market is expected to become the second growth curve for in-network business.
New energy is driving high growth, and emerging businesses are poised to launch. In '23, the company's power plant and industrial automation achieved revenue of 2,491 billion yuan, +12% year-on-year, and gross margin of 27.54%, or +2.77pct year-on-year. 1) Renewable energy secondary sector. The company won bids for new energy projects such as Kubuqi, Shagehuang, etc., and maintained its leading position in the new energy field. We expect orders for new energy secondary equipment to be +30% year-on-year in 23, and are expected to maintain a year-on-year increase of more than +20% in 24. 2) Power electronics business, affected by the SVG price war, we expect the company's power electronics business to achieve single-digit growth and is expected to continue growing in 24; we are optimistic about the company's rapid development in the energy storage business. The revenue from other sectors of the company (mainly energy storage business) was 322 million yuan in 23, +62% year-on-year, and revenue is expected to continue to rise in 24; 3) In terms of emerging businesses, we are actively expanding new technology fields such as green electricity hydrogen power supplies, special power supplies, and flexible interconnection systems.
The cost side is well controlled, and on-hand orders+good cash flow guarantee the company's steady and far-reaching progress. The company's sales, management, R&D, and financial expense ratios were -0.03/+0.45/+1.03/+0.06pct to 8.33%/4.83%/9.41%/-1.00%, respectively. The increase in management expenses was mainly due to the impact of incentive expenses, and overall cost side control was good. Net cash flow from operating activities in '23 was 1,233 billion yuan, +74% year-on-year, and end-of-period contract debt was 1,389 million yuan, +27% compared to the beginning of the year. There were sufficient orders in hand, and cash flow was abundant. We are optimistic about the company's long-term steady development.
Profit forecast and investment rating: Considering the impact of the company's equity incentive expenses over the next three years, we expect the company's net profit to be 7.3 (-0.9) /9.1 (-1.2)/1.05 billion yuan respectively for 24-26 years, +17%/24%/16% year-on-year, and corresponding current price valuations are 18x, 15x, and 13x, respectively, maintaining a “buy” rating.
Risk warning: grid investment falls short of expectations, new energy installations fall short of expectations, competition intensifies