2023 results are in line with our expectations
The company announced its 2023 results: revenue of 60.68 billion yuan, +9.6% year on year; net profit to mother of 3.55 billion yuan, +24.4% year on year, net profit not attributable to mother of 2.58 billion yuan, +8.2% year on year. Among them, 4Q23 revenue was 15.91 billion yuan, +7.5% year on year, and net profit to mother was 640 million yuan, +80.1% year over year. The company's performance in 2023 was in line with our expectations.
The nuclear power/gas engine/coal power/power plant service sector is growing rapidly, while the wind power/hydropower/emerging growth sector is declining. By sector: 1) Renewable energy: In 2023, the company's fan sales increased 32.6% year on year, but due to the decline in fan prices, revenue was -11.1% YoY to 10.84 billion yuan; hydropower revenue was -7.2% YoY to 2.31 billion yuan. We think it was mainly due to the decline in conventional hydropower revenue. 2) Clean and efficient energy equipment: Nuclear power/fuel engine/coal power business revenue was 2,0/37.9/13.09 billion yuan, respectively, +41.1%/+107.0%/+28.7% year-on-year, respectively. 3) Engineering and trade: Revenue +14.1% year-on-year to $120.2 billion, of which the general engineering contracting sector +31.0% year-on-year. 4) Modern manufacturing services: +27.0% year-on-year to 5.38 billion yuan, of which the power plant service sector was +48.7% year-on-year. We believe it is mainly driven by the demand for “three reforms linked” of thermal power. 5) Emerging growth industries: Revenue was -19.5% to 8.84 billion yuan. We judge that it may be affected by the decline in demand for energy saving and environmental protection equipment.
Increase profitability and give back to shareholders by increasing the dividend ratio. The company's gross profit margin (excluding interest expenses and handling fees) and net profit margin in 2023 was +0.8/+0.7ppt to 17.3%/5.9% year-on-year. Excluding the impact of the finance company's financial business, the company's net operating cash flow in 2023 was 2.49 billion yuan. The dividend ratio of the company's plan for 2023 is 41.7%, +5.2ppt compared to the previous year.
Development trends
The growth rate of new active orders is impressive, and I am optimistic that the company's performance will grow steadily. In 2023, the company achieved new efficiency orders of 86.532 billion yuan, +32.0% year-on-year. Among them, clean and efficient energy equipment was +57.4% year-on-year to 34.13 billion yuan, and renewable energy equipment/engineering and trade/modern manufacturing services/emerging growth industries were +12.9%/+37.2%/+14.8%/+19.4%, respectively. We are optimistic that the company's high-margin thermal power orders will gradually confirm revenue over 24-26 years to drive the company's profits up, and the pumped energy storage sector will continue to grow.
Profit forecasting and valuation
In view of the delay in the implementation of thermal power investment, we reduced 2024 net profit by 8.7% to 4.138 billion yuan, while introducing net profit of 2025 of 5.256 billion yuan. The current A share price corresponds to the 2024/2025 price-earnings ratio of 11.9 times/9.3 times, and the current H share price corresponds to the 2024/2025 price-earnings ratio of 5.5 times/4.1 times.
Taking into account the shift in valuation and the overall recovery of the Hong Kong stock market, we maintained an A/H share performance rating. A shares maintained a target price of 19.00 yuan, corresponding to 14.3 times the 2024 price-earnings ratio and 11.3 times the 2025 price-earnings ratio, with 20.6% upside compared to the current stock price. H shares maintain a target price of HK$9.00, corresponding to 6.0 times the 2024 price-earnings ratio and 4.5 times the 2025 price-earnings ratio. There is 10.0% upside compared to the current stock price.
risks
The growth rate of power investment fell short of expectations, and the rise in raw material costs exceeded expectations.