Brief performance review
On the evening of April 16, the company disclosed its 23 annual report, achieving full-year revenue of 1.03 billion yuan, +35.0% year over year; net profit to mother of 86.68 million yuan, +48.0% year over year. The performance was in line with expectations.
Management analysis
With the introduction of a coal-power capacity mechanism, there is still room for this round of thermal power investment. 23 Domestic thermal power investment reached 102.9 billion yuan, +15% year-on-year; the total revenue of the company's dry/wet slag removal system and low-temperature flue gas waste heat deep recovery system business was 850 million yuan, +16.3% over the same period last year, slightly higher than the industry's growth rate. Prior to the introduction of the coal-power capacity mechanism in '23, thermal power approval was relatively quick, but the progress of investment and construction was actually slower than expected due to concerns about the long-term earnings of the unit. We believe that the price of capacitive electricity has already been implemented, the construction of thermal power will accelerate, and the company's traditional business will benefit.
New energy consumption has entered a new stage, and demand for full-load denitrification businesses is improving. As the share of electricity traded on the market for new energy increases, thermal power reduces output periods and increases, and more existing units will be flexibly modified due to economic considerations. The company's revenue in this business was -25.2% year over year, which may be related to the pace of release of demand for transformation.
Cost increases have good margins and gross margins are generally stable; business expansion has led to higher rates. The company's comprehensive gross margin in 23 reached 33.7%, -0.1 pct year on year, material/labor costs increased, and product unit price adjustments were timely; the company's management rate/sales rate in '23 was 8.5% and 7.4%, respectively, all +0.5 pct year over year, mainly due to the industry boom cycle actively seeking project resources and developing new businesses such as steel slag treatment.
The steel slag business confirmed performance, and a new growth curve was established. 6M23 signed a contract with Beijing Shougang Construction Group for comprehensive industrial utilization equipment of steel slag, amounting to 104 million yuan. In '23, the company confirmed the steel slag business revenue of 91.867 million yuan. The gross margin of the business reached 40.4%, which is higher than the profit level of the power industry, reflecting the higher technical requirements of the business.
Profit Forecasts, Valuations, and Ratings
We expect the company to achieve net profit of 1.3/17/180 million yuan from 2024 to 2026, and EPS of 1.09/1.34/1.49 yuan, respectively. The corresponding PE is 13 times, 11 times, and 9 times, respectively, maintaining a “buy” rating.
Risk warning
The scale of new thermal power installations falls short of expectations, the progress of thermal power flexibility transformation falls short of expectations, new business expansion falls short of expectations, etc.