Incidents:
The company released its 2023 annual report. The company achieved operating income of 1,493 billion yuan, an increase of 22.12% over the previous year, and realized net profit attributable to the parent company of 173 million yuan, an increase of 198.57% over the previous year.
The equipment business is developing steadily, and growth potential continues to be unleashed:
Focusing on the main power equipment business, the company followed national industrial policies and industry trends. Through measures such as product development and market development, production line upgrades and brand promotion, the company achieved both revenue and net profit growth in the power equipment sector. In 2023, the equipment sector achieved revenue of 1,385 billion yuan, an increase of 24.4% over the previous year; thanks to the expansion of marketing scale, improvement in self-control rate, and optimization of product structure, gross margin increased 4.3% compared to the previous year to 37.19%.
(1) In terms of product layout, isolation switches are fully covered, and new combined electrical appliances and complete equipment have been introduced. With high voltage isolators as the core, the company covers all voltage levels from 12 to 1100kV. It continues to participate in the simultaneous research and development of national grid construction projects, and its market share in the State Grid has been at the forefront of the industry for many years. The 550kV GIS project completed key technology development and supplementary tests such as three-phase isolation/grounding switch linkage, 5000A isolator switch, high parameter parent transfer structure, and ground connection corrosivity tests, which successfully laid the foundation for the smooth delivery of the State Grid Zhejiang Ninghai 550kV project. The company has also completed the development of 550kV GIL products and a full set of type tests, 35-500kV GIS current transformer type test reports, type evaluation certificates and type evaluation reports, energy-saving transformers, environmentally friendly gas-insulated cabinets, intelligent substations and other standardized design, testing and testing.
(2) In terms of market expansion, product orders are growing steadily. The 550kV GIS product developed by the company won the bid in the national grid centralized tender for the first time, reflecting the company's technical strength and market competitiveness in the field of high-voltage isolators. The 10kV silicon steel distribution transformer and 10kV amorphous alloy transformer developed by Changgao Senyuan successfully won the bid for the provincial distribution network project, passed the State Grid qualification examination, qualified for bidding, and achieved a breakthrough in the order. The 35kV inflatable cabinet and KYN61 cabinet developed and produced by Changgao Complete won the bid in the 2023 State Grid headquarters centralized tender. The winning bid amount ranked high, laying a solid foundation for Changgao's complete medium voltage products to enter the first tier of the industry.
(3) Continue to work hard, improve the product line, and be optimistic about the company's growth potential. While stabilizing the state grid market, the company will actively explore the southern grid market and distribution grid market and markets outside the power grid system, actively explore overseas markets, increase order sources, and diversify customer concentration. In terms of products, we are promoting research and development of 363 kV GIS, 550 kV GIL gas mixtures, and 750 kV GIS to improve the performance of isolation switches in harsh conditions such as high altitudes, improve internal distribution of current transformers, develop primary and secondary integrated traveling wave positioning magnetic column switches, 5.5 MW wind power box transformers, industrial and commercial energy storage all-in-one machines, solid insulated ring network cabinets, environmentally friendly gas cabinets, and energy storage electronic transformers.
The engineering business gradually reduced losses, and the risk of impairment of goodwill was released:
The engineering sector achieved revenue of 196 million yuan in 2023, an increase of 16.9% over the previous year. The power design and engineering turnkey business has been affected by increased competition in the industry in recent years, and the recovery has been relatively slow. In 2023, overall, there was a positive trend of declining performance. In 2023, Hubei Huawang lost 21.325 million yuan, a year-on-year loss.
As of December 31, 2023, the goodwill book value of the company's consolidated statements was 654.081 million yuan. In 2023, the company calculated goodwill impairment against Hubei Huawang, with a total impairment of 259.504 million yuan. Hubei Huawang's goodwill book value was 0. There is no risk of impairment of goodwill in the future.
In 2024, the company will step up the management of China Grid Power and strive to reverse losses by adjusting the management structure, streamlining personnel, and speeding up repayment efforts.
Investment advice:
We expect the company's revenue from 2024 to 2026 to be 1,928/26.16/3.457 billion yuan, respectively, with growth rates of 29.1%/35.7%/32.2%, and net profit of 3.11/4.42/594 billion yuan, respectively. Growth rates are 79.9%/41.9%/34.5%, respectively, with outstanding growth. Referring to comparable companies in the power grid equipment industry, the PE of comparable companies in 2024 was 22 times. Considering the gap between the company's current revenue volume and market share and comparable companies, the company was given 15 times PE in 2024, with a target price of 7.50 yuan for 6 months, and an investment rating of buy-A.
Risk warning: grid investment falls short of expectations; progress of new product development falls short of expectations; engineering business development falls short of expectations; risk of credit impairment.