Incident: The company released its annual report for the year 23, achieving revenue of 17.061 billion yuan, an increase of 14%, and net profit attributable to the parent company of 1,005 billion yuan, an increase of 28%; of these, Q4 achieved revenue of 6.397 billion yuan, an increase of 8%, and net profit to mother of 233 million yuan, an increase of 70%. The gross profit margin in '23 was 18.00%, down 1.04pct, the Q4 gross margin was 16.78%, up 0.58pct, down 1.93pct; the net profit margin to mother in '23 was 5.89%, up 0.80pct, Q4 net profit margin 3.65%, up 1.73 pct, down 2.66 pct. Higher gains and losses from debt restructuring had a slight impact on returns to the mother, and deductions for non-performance are in line with market expectations.
In '23, the year UHV started, I am optimistic about a strong increase in both revenue and orders in '24. In '23, the company's DC transmission business revenue was 716 million yuan, +3% year over year, gross profit margin was 42.29%, and -4.05 pct year on year. In '23, the State Grid started a total of 4 ultra-direct projects. The company won the bid for a total of 6 converter valves and 4 sets of DC control guarantees, and successfully won the bid for the Qingzhou Wuqi Haifeng Direct Converter Station. There are plenty of orders in hand. Looking ahead to 24, the State Grid expects to start 5 ultra-straight projects. Among them, Mengxi-Beijing-Tianjin-Hebei and Gansu-Zhejiang will use flexible straightening technology. The company is expected to fully benefit as a core supplier of flexible direct converter valves in China. Therefore, we expect the company's DC transmission business to generate about 60% CAGR in 23-26 years.
The new energy business is listed separately, and multiple businesses for wind and solar hydrogen storage are being developed collaboratively. The company's reporting business was adjusted in '23, and the new energy power electronics and wind and solar energy general contracting business and the hydrogen energy business were formed into a new energy and system integration segment. In '23, it achieved revenue of 3,941 billion yuan, +42% year-on-year, and a gross profit margin of 5.42%, and +0.32pct year-on-year. Based on the power grid industry, the company built an industrial system for joint development of source grid load storage, laid out hydrogen energy business, focused on products and solutions such as IGBT hydrogen production power supplies, hydrogen electric coupling, etc., and realized the first set of orders. Looking ahead to 24, domestic scenery/storage capacity is expected to grow 20%/45% year over year, and we expect the company's revenue from the new energy sector to grow by more than 20%.
Power transformation+electricity meters are steady, and the international market is progressing smoothly. 1) In '23, the company's intelligent power distribution and smart meter business achieved revenue of 4,577.7/3.483 billion yuan respectively, -1%/+13% year-on-year, and a gross profit margin of 22.66%/25.24%, or -1.55pct year-on-year. Distribution grid investment was under pressure in '23. We expect the company's intelligent substation business to be dragged down slightly by the power distribution business. The substation business is expected to achieve single-digit growth, power distribution investment will rise steadily in 24, and the share of secondary products will increase with the support of digital intelligence, which is expected to achieve steady growth in revenue and profitability. 2) In '23, the company's international business achieved revenue of 153 million yuan, +98% year-on-year, gross profit margin of 20.02%, and +3.98pct year-on-year. In '23, the company has vigorously developed overseas markets and signed projects such as Chile's AMI Phase II, Italy's medium voltage metering, and Saudi intelligent power distribution. Electricity distribution products have successfully entered high-end overseas markets, and new energy products such as charging piles have also entered the Thai and Singapore markets. Looking ahead to 24 years, the company is expected to participate deeply in the Saudi Arabia/Brazil DC UHV construction to open up room for DC business to grow overseas, and the international business is expected to maintain rapid growth.
Expense control is good, cash flow is healthy, and market-based management effectively improves operating efficiency. The company's expense ratio decreased by 0.28 pct to 10.86% during the 23-year period. The cost side control was good. The net cash flow inflow from operating activities was 2,748 billion yuan, an increase of 59% over the same period, and the cash flow level was healthy. The contract debt at the end of the period was 1,362 billion yuan, an increase of 17.71% over the beginning of the year, and there are sufficient orders in hand. In '23, the company's per capita profit/revenue generation ratio was +32%/15%. By establishing market-based incentives such as a “horse racing” assessment mechanism and profit incremental rewards for core employees, the efficiency of the company's operations and management was effectively improved.
Profit forecast and investment rating: Considering that Rouzhi Engineering began contributing revenue in '25, the net profit for 24-26 was unchanged, and the net profit for 24-26 was 11.6/16.8 (+2.5) /1.87 billion yuan, respectively, +16%/44%/12% year-on-year, and PE corresponding to the current price was 24x, 16x, and 15x, respectively, maintaining the “buy” rating.
Risk warning: Grid investment falls short of expectations, flexible planning falls short of expectations, share falls short of expectations, competition intensifies, etc.