Incidents:
Changgao Dianxin released its 2023 annual report on March 26: In 2023, the company achieved revenue of 1,493 billion yuan, +22.12%; net profit to mother of 173 million yuan, +198.15%; net profit after deducting non-return to mother of 156 million yuan, +266.08% year on year; gross profit margin of 34.44%, +3.16pct year on year; net profit margin of 11.44%, +7.46pct year on year.
2023Q4, the company achieved revenue of 429 million yuan, +3.83% month-on-month, +1.05% year-on-year; net profit to mother of 0.09 million yuan, -88.50% month-on-month, +135.03%; gross profit margin of 33.84%, -3.88pct, year-on-year +2.93pct; net profit margin of 1.85%, month-on-month -17.35pct, year-on-year +9.58pct.
Investment highlights:
The gross margin increased, the period expense ratio decreased, and the risk of impairment decreased. The increase in the company's gross margin in 2023 is mainly due to an increase in the gross margin of power equipment and an increase in the share of revenue. The cost ratio for the period was 18.27%, -1.74 pct year on year. By business, 1) Electric power equipment: revenue of 1,385 billion yuan, year-on-year, accounting for 92.73% of revenue, +1.70pct, gross profit margin 37.19%, year-on-year +4.30pct, mainly due to the fact that equipment products are affected by expanded marketing scale, increased self-control rate, and changes in product structure; 2) Power design and service and total packaging: revenue of 96 million yuan, +16.86% year-on-year, gross profit margin of 0.72%, year-on-year -7.69pct. This business has been affected by increased competition in the industry in recent years, and the recovery is relatively slow. 2023 showed a positive trend of performance loss reduction; 3) New energy power generation: revenue of 0.5 billion yuan, -71.17% year on year, gross profit margin -20.63%, -92.22pct year on year. The main reason is that some new energy projects of the subsidiary HuaNet Power have not been implemented and losses were due to electricity price adjustments to the well limit project subsidies, credit impairment, etc.
In 2023, the company has calculated a goodwill impairment of China Grid Power by 26 million yuan. After this calculation, the book value of China Grid Power was 0, and the risk of subsequent impairment was reduced.
Breakthroughs have been made in new products such as 550kV combination appliances, contributing to new growth points. In 2023, the 550kV GIS developed by Changgao Electric won the bid in the China Grid centralized tender for the first time; the 10kV silicon steel distribution transformer developed by Changgao Senyuan won the bid in the provincial distribution network, and the 10kV amorphous alloy transformer passed the State Grid qualification examination, and achieved a breakthrough of zero orders; the 35kV inflatable cabinet and KYN61 cabinet developed and produced by Changgao Electric won the bid in the 2023 State Grid headquarters. During the reporting period, benefiting from changes in product structure and increased profitability, Changgao Electric/Changgao Complete Sets/Changgao Senyuan's net profit was +204.44%, 39.99%, and 48.16%, respectively. In 2024, in the first batch of tenders from the State Grid, Changgao Electric won 172 million yuan, +35% over the same period last year. The company's performance is expected to grow in 2024.
Raise capital to expand production capacity, and will actively explore new markets and explore new volumes in the future. In 2023, the second phase of the company's Ningxiang production base project was fully put into operation, and the self-control rate and self-sufficiency rate of the company's GIS components and external components reached more than 80%. In January 2024, the company issued a convertible bond plan to raise 780 million yuan in capital. The projects are the Jinzhou Production Base Phase III project, the Wangcheng Industrial Park upgrading and renovation project, and the Changgao Green Power Distribution Industrial Park construction project, which will further enrich the company's product categories and production capacity. In the future, while stabilizing the state grid market, the company will actively explore the southern grid market, distribution grid market, and markets outside the power grid system, actively explore overseas markets, increase order sources, and diversify customer concentration. Furthermore, the company will also continue to implement sales policy reforms, continue to sink into the secondary and tertiary markets, and seek new market growth.
Profit forecast and investment rating: We expect that in 2024-2026, the company is expected to achieve operating income of 18.81/22.71 billion yuan, net profit to mother of 3.07/3.84/453 billion yuan, and PE corresponding to current stock prices is 14X, 11X, and 9X, respectively. The company has been deeply involved in power transmission and distribution equipment for several years, and the 500kV combined electrical appliance business share is expected to increase further. We are optimistic about the company's future growth, covered for the first time, and gave it a “buy” rating.
Risk warning: the risk of macroeconomic changes, the risk of increased market competition, the risk of changes in raw material prices, market development falling short of expectations, and downstream repayments falling short of expectations.