Description of the event
The company released its 2023 annual report on March 21. In 2023, it achieved revenue of 4.20 billion yuan, an increase of 18.7% year on year, net profit to mother - 540 million yuan, -422.0% year on year; net profit after deducting non-return to mother - 360 million yuan, +22.2% year on year. The overall performance of the company fell short of expectations. By product structure, smart grids achieved revenue of 2.50 billion yuan, an increase of 2.6% over the previous year, and the energy storage business achieved revenue of 1.44 billion yuan, an increase of 106.7% over the previous year.
Incident reviews
Net profit not attributable to mother was reduced, and the financial expense ratio continued to improve. In 2023, the company's net profit to mother was 540 million yuan, -422.0% year over year, net profit after deduction of 360 million yuan, and achieved a year-on-year loss of 100 million yuan, of which Q4 net profit to mother - 450 million yuan, net profit after deducting non-return to mother - 310 million yuan, mainly due to 1) default caused non-operating expenses of about 200 million yuan; 2) calculation of energy storage contract after-sales expenses plus depreciation of **** Smart Energy Industrial Park caused a significant increase in Q4 sales and management expenses. Management fee rates were 21.0%/19.8%, respectively, +15.9pct/16.5pct month-on-month. At the same time, benefiting from direct or indirect financial support from the US, the company's financial problems were mitigated. The financial expense ratio fell from 17.4% in 23Q1 to 3.9% in Q4, and the balance ratio dropped from 92.1% in 2022 to 87.6% in 2023.
Overseas markets are developing smoothly, and the energy storage business volume is rising sharply. 1) Scale: In 2023, the energy storage business achieved revenue of 1.44 billion yuan, a year-on-year increase of 106.7%, and the revenue share increased by 14.6pct to 34%; in '23, the company's energy storage system shipped 1.3 GWH, +116% YoY; 2) Profit: Benefiting from high-price market order delivery in Europe and the US, profitability rebounded sharply. The company's gross profit margin for energy storage business in '23 was 25.4%, +11.3% year-on-year. We estimate the company's BESS unit price is 1.15 yuan/Wh, and profit per hour is 0.28 yuan/Wh. 3) Production capacity: The Yichun base was expanded within the year. The company currently has a BESS production capacity of 8 GWH. The Shunde base is expected to be completed in early 2025, and the total production capacity of the company's BESS will reach 22 GWh after production. 4) Market development: On the one hand, the company is deeply involved in the dominant market in North America and established an American subsidiary in September last year. Currently, it is deeply bound to customers such as Mitsubishi Electric Power and Stella Energy. Among them, the cumulative supply orders to Mitsubishi Electric Power have reached 1.5 GWh.
At the same time, the company has a forward-looking layout in Europe and emerging markets, and signed a strategic cooperation agreement with InsightEnergi, a well-known European energy product integrator, to expand the Asian, African and Latin American markets with power grid channels.
Smart meters are rising steadily, and domestic demand is overseas for two-wheel drive. The company achieved revenue of 2.59 billion yuan in smart meters in 2023, an increase of 2.6%, a gross profit margin of 31.2%, and an increase of 0.3 pct. On the domestic side, according to statistics from the company's “Notice on Receipt of the Notice of Winning the Bid”, the company received 1.12 billion yuan in the domestic market in 2023, of which 520 million yuan and 530 million yuan were won for the South Grid and State Grid projects respectively. Overseas, the company increased market development in Europe, Asia Pacific, Africa and Latin America, adding about 600 million yuan in overseas markets in 2023, a marked increase over the same period last year.
Investment advice
We believe that the increase in energy storage shipments in Europe and the US will drive the scale effect of the cost ratio during the dilution period plus the reduction of costs and efficiency of US management, capital, and channel empowerment, which is expected to drive an increase in the company's profitability, and the company is expected to turn a loss into a profit in 2024. The company's net profit for 2024-2026 is estimated to be 1.0\ 2.9\ 49 billion yuan, EPS was 0.06\ 0.18\ 0.29 yuan, respectively, corresponding to the company's closing price of 4.54 yuan on March 22, and PE of 79.8\ 25.6\ 15.5 for 2024-2026, respectively, maintaining a “buy-B” rating.
Risk warning
The new installed capacity of energy storage fell short of expectations; the development of overseas markets fell short of expectations; the company was involved in litigation related risks; the company lost money continuously for the past two years.