Investment summary
The company's net profit for 2023 was 982 million yuan, and the performance exceeded expectations. On April 15, the company released its 2023 annual report: achieved operating income of 4.200 million yuan (+26.91% year over year); realized net profit of 982 million yuan (+47.90% year over year); realized net profit of 941 million yuan (+60.08% year over year); net cash flow from operating activities of 1.01 billion yuan (+63.03% year over year); weighted average ROE of 15.69%. It is proposed to distribute a cash dividend of 11 yuan (tax included) for every 10 shares to all shareholders based on the company's share capital of 489 million shares.
Among them, 2023Q4: operating income of 1,328 million yuan (+43.84% YoY, +33.53%); net profit to mother of 314 million yuan (+61.2% YoY, +35.37% YoY); net profit of 315 million yuan (+78.87% YoY, +40.06% YoY); and net cash flow from operating activities of $417 million (+160.11% YoY, +21.95% YoY).
In our previous in-depth report, we estimated the company's net profit to be 823 million yuan in 2023. The company's performance greatly exceeded expectations, mainly because the revenue and gross margin of the smart electricity business exceeded expectations.
Intelligent electricity use: The overseas market grew significantly, with software and solutions accounting for a significant increase of 3,595 billion yuan in the smart electricity business in 2023, +23.93%. Among them, the overseas portion grew significantly. The overseas smart electricity business achieved revenue of 2,561 billion yuan, +41.72% over the same period last year. The gross profit margin was 43.85%, +5.14 pct year over year. We believe the main benefits are a significant increase in the share of high-margin system software and solutions (60% of revenue) and a drop in raw material prices. The wholly-owned subsidiary Haixingzeke (software business) had a net profit of 115 million yuan for the year, 78.74% year-on-year. We believe that the company has strong software and overall solution capabilities. We are optimistic that the share of software and solutions will continue to increase in the future, driving the company's order growth and further increase in gross margin.
Intelligent power distribution: multi-point breakthroughs on the market, continuous expansion of product lines
Intelligent power distribution is a natural extension of the smart electricity business. Revenue in 2023 was 406 million yuan, +24.19% year over year, including 117 million yuan in overseas markets, +406.67% year over year. Overseas markets won the bid and delivery for distribution network procurement projects in the African market; in the domestic market, the Southern Network collection project won the bid for the first time. The company's power distribution business product line continues to expand, and has developed a series of new energy distribution network products such as DC combiner boxes, low voltage grid-connected cabinets, high-voltage grid-connected cabinets, and photovoltaic booster boxes (Huabian).
New energy: High growth at home and abroad, and new growth poles are gradually taking shape
In 2023, the new energy business revenue was 163 million yuan, +283.50% year on year, with domestic revenue of 50 million yuan, +78.14% year on year, and overseas revenue of 113 million yuan, +672.38% year on year. The company achieved channel business revenue in markets such as Africa, Europe and Latin America, and won the bid for the 10-million-level charging station EPC project in the domestic market.
The company is a pioneer in power equipment going overseas, and will continue to benefit from high domestic and overseas markets in the future. We believe that with the increase in the penetration rate of new energy sources and the development of intelligent power grids, global power grid investment is expected to accelerate. Under the resonance of domestic and foreign demand, power equipment will begin to enter a boom cycle. Since its establishment, the company has been deeply involved in the international market. It is a pioneer in power equipment going overseas. The domestic business has continuously achieved dual breakthroughs on the client side and the product side, and will continue to benefit from high growth in domestic and overseas markets in the future. We believe that as the proportion of superimposed software and solutions increases, the company's competitiveness and profitability will continue to increase.
Investment advice
We are optimistic that the company's electricity distribution business will continue to grow rapidly under the resonance of domestic and international demand, and the expansion of the second curve of the new energy business. The company's net profit for 2024-2026 is estimated to be RMB 1,223, 15.08, and RMB 1,832 billion, respectively, +24.45%, +23.35%, and +21.51% year-on-year, respectively. We gave the company a 25x PE valuation based on the 2024 performance forecast of 1,223 billion yuan, with a target market value of 30.6 billion yuan. Continued recommendation, maintaining a “buy” rating.
Risk warning
Overseas market operating risks, new energy business development falling short of expectations, exchange rate risks.