Incident: Southern Network Technology revealed its 2023 annual report. During the reporting period, the company achieved operating income of 2,537 billion yuan, an increase of 41.77% over the previous year; realized net profit of 281 million yuan, an increase of 36.71% over the previous year; and realized net profit withheld from non-mother of 264 million yuan, an increase of 36.53% over the previous year.
Comment:
The business structure was adjusted, and the gross margin remained stable. During the reporting period, the company's gross margin was 28.98%, a year-on-year decrease of 0.68pct. Previously, the market feared that the rapid expansion of the low-margin energy storage business would be a drag on the company's profitability, but in 2023, the expansion of the scale of the test and testing business and the increase in gross margin of intelligent power distribution equipment effectively calmed the impact of the expansion of the energy storage business on gross profit, and the company's overall gross margin remained stable.
The merger and acquisition was completed, and the test and testing business broke through across regions with remarkable results. In 2023, the company's testing and testing business achieved revenue of 582 million yuan, an increase of 64.73% over the previous year. The company completed the merger of Guizhou Chuangxing and Guangxi Guineng. The two generated revenue of 143 million yuan and 95 million yuan respectively during the merger period. Through mergers and acquisitions, on the basis of maintaining its market share in Guangdong Province, the company won bids for projects such as sub-system commissioning of the Guangxi Guangtou Beihai Power Plant, the commissioning of the Chuanjiyang Gas Power Station, and Huaneng Lemen Sea Wind, etc., to expand the power supply side test, inspection and commissioning business outside of Guangdong and the five southern provinces and regions. On the power grid and user side, the subsidiary Guangdong Telecom has obtained additional qualifications, increasing its influence and competitiveness in the industry.
Intelligent power distribution equipment based on self-developed operating systems has formed a unified standard for the South Grid. In 2023, the company's electrical distribution equipment achieved revenue of 442 million yuan, a year-on-year increase of 31.85%, gross margin of 34.32%, an increase of 8.27pct over the previous year, mainly due to the sharp increase in revenue from the company's self-developed iNOS system and core modules, which led to an increase in gross profit. Bluetooth modules based on the “Silk Road” system have full coverage in the South Grid 21 smart energy meter market. The smart metering turnover cabinet has achieved full coverage in Guangdong and formed a standard, and is being promoted in the remaining four provinces of the Southern Grid. We anticipate that this business will continue to benefit from the localized replacement of South Grid equipment.
The robot and drone business achieved revenue of 275 million yuan, a year-on-year decrease of 7.36%, mainly due to changes in the customer's annual procurement cycle. During the reporting period, the company's unmanned inspection system was applied on a large scale in the Guangxi Power Grid, and the first inspection project was completed on the State Grid. The company leads the industry in drone inspection products and is expected to continue to make efforts nationwide.
The energy storage business is progressing steadily, and its position in the industry is stable. The company's energy storage system technology service achieved revenue of 726 million yuan, an increase of 123.11% over the previous year, and the installed capacity reached 245 mW/375 MWh. The company continues to promote self-research on core energy storage equipment, including air cooling, liquid-cooled battery packs, energy storage monitoring systems, etc., which is conducive to consolidating its leading position in the industry.
Investment advice: Maintaining the “buy” rating, the company is expected to achieve revenue of 38.9/57.68 billion yuan from 2024 to 2026, an increase of 53.3%/48.8%/32.7%; achieve net profit to mother of 3.92/5.38/ 694 million yuan, an increase of 39.4%/37.1%/29.1% year on year.
Risk warning: Energy storage projects fall short of expectations; smart device marketing falls short of expectations.