Incidents:

Jinpan Technology released its 2023 annual report on March 20: in 2023, the company achieved revenue of 6.668 billion yuan, +41% year over year; net profit to mother of 505 million yuan, +78% year over year; net profit after deduction of 481 million yuan, +105% year over year. 2023Q4 achieved operating income of 1,895 million yuan, +22% year over month; net profit to mother of 171 million yuan, +49% year over month, +21% month on month; net profit without return to mother of 159 million yuan, +130% year over month, +17% month on month.

Investment highlights:

Digitalization has achieved remarkable results, and profitability continues to improve. In 2023, the company actively expanded the new energy market, new industries and customers, and obtained long-term large orders. Combined with the addition of production capacity after digital efficiency improvements and upgrades, the company achieved a high increase in performance. During the reporting period, the company's profitability continued to increase, with a weighted ROE of 16.45%, +5.59pct; gross margin of 22.8%, +2.5pct, net interest rate 7.5%, and +1.6pct year over year, mainly due to the increase in digital manufacturing capacity. Coupled with the decline in material prices, the proportion of high-quality customers increased, and management expenses decreased; in addition, the company's digital lean inventory reduced the use of inventory capital and increased payment collection, and achieved net operating cash flow of 20.5 million yuan, compared with +297% year on year last year.

Revenue in the new energy sector increased year-on-year, and revenue from energy storage and export sales increased significantly. Revenue from the transformer series and transmission and distribution was $6.141 billion, +36% year on year; revenue from the energy storage series was $414 million, +547% over the same period, achieving high growth; revenue from the digital factory was 70 million yuan, -48% over the same period, mainly due to the long project cycle, and some projects had not yet completed acceptance. Let's look at it downstream:

Revenue from the new energy sector was 3.723 billion yuan, +68% year on year, revenue from the non-new energy sector was 2,833 billion yuan, +20% year over year, and the rest was digital factories; of these, revenue from the new energy sector accounted for:

PV 51% (revenue +89%), wind power 30%, energy storage 17% (revenue +303% YoY). The share of revenue in the non-energy sector: 42% of industrial enterprise electrical equipment (+40% revenue), 19% of important infrastructure, 13% of energy efficiency, and 6% of new infrastructure; in terms of domestic and foreign sales: domestic sales of 5.449 billion yuan, +35% year-on-year, and export sales of 1,177 billion yuan, +80% year-on-year.

Ongoing orders are sufficient, hundreds of new overseas customers have been added, and export orders have grown significantly. The company's overall sales order in 2023 was 7.832 billion (excluding tax), +35%; new energy storage system orders in 2023 reached 641 million yuan (excluding tax), +145%; export orders were 1,991 billion yuan, +119 percent year-on-year, adding nearly 100 new overseas customers during the year. Overseas business sales grew rapidly in various fields of power generation and power supply, industrial electrical support, and new infrastructure.

In 2024, the company signed a new digital order of 229 million yuan (tax included), and up to now, it has accepted more than 600 million yuan of digital orders.

Profit forecast and investment rating: The company uses transformers as the basic market to expand energy storage+ digital factories vertically. With the commissioning of transformers and digital energy storage plants, the company's production capacity continues to increase, and performance is expected to increase. We expect the company to achieve operating income of 91.65/120.46/15.253 billion yuan in 2024-2026, a year-on-year increase of 37%/31%/27%, and achieve net profit to mother of 796/10.68/1,334 billion yuan in 2024-2026, an increase of 58%/34%/25% year-on-year, corresponding PE of 22X/17X/13X. First coverage, giving a “buy” rating.

Risk warning: macroeconomic risks, overseas market development falling short of expectations, risk of fluctuations in raw material prices, increased risk of market competition, risk of policy changes.