Incidents:
Xu JiElectric released its 2023 annual report on April 11, 2024: In 2023, the company achieved revenue of 17.1 billion yuan, +14%; net profit of 1.01 billion yuan, +28% year on year; net profit after deducting 870 million yuan, +22% year on year; gross profit margin 18.0%, -1.0pct year on year; net profit margin 7.0%, +0.5pct year on year; net profit margin of 5.1%, year on year +0.3 pct year on year.
Among them, 2023Q4 had revenue of 6.4 billion yuan, +80% month-on-month, +8%; net profit of 230 million yuan, +4% month-on-month, +70% year-on-year; net profit of 150 million yuan, -22% month-on-month, +69% year-on-year; gross profit margin 16.8%, -1.9 pct month-on-month, +0.6 pct; net profit margin 4.4%, month-on-month +1.5pct.
Investment highlights:
The new energy and system integration business grew rapidly in 2023, and the performance indicators were steady, moderate and positive. In 2023, the company achieved revenue of 4.6 billion yuan for intelligent power transformation and distribution systems, -1% year-on-year, gross profit margin of 22.7%, -1.6 pct; new energy and system integration revenue of 3.9 billion yuan, +42% year-on-year, gross profit margin 5.4%, +0.3 pct; smart meter revenue of 3.5 billion yuan, +13%, gross profit margin of -0.4 pct; revenue of intelligent medium voltage power supply equipment, +1.3 pct; revenue of charging and switching equipment and other manufacturing services of 1.2 billion yuan. YoY +9%, gross profit margin 10.6%, YoY -0.7pct; DC transmission system revenue was 700 million, +3% YoY, gross profit margin 42.3%, YoY -4.1pct. Among them, the decline in revenue of intelligent power conversion and distribution systems was mainly due to business sector division adjustments. The company adjusted products such as PCS and SVG energy storage from intelligent power conversion and distribution systems to new energy sources and system integration. In addition, the rapid increase in the company's profits is also related to the increase in non-recurring profit and loss. Non-recurring profit and loss are mainly due to debt restructuring gains and losses, government subsidies, etc.
The company has extensive engineering experience, and the increased penetration rate of UHV and Sea Breeze is expected to drive rapid growth in the company's performance. Domestic UHV benefits from the construction and commissioning of a major scenic base and ushered in a new round of approval. According to Energy News Media, UHV is expected to start construction of 4 DC lines in 2024, and it is expected to maintain a high level of prosperity after 2025. Previously, Rouzhi had only a few demonstration projects. According to the State Grid, Rouzhi will start construction 1-2 in 2024, and the penetration rate of Rouzhi is expected to increase rapidly. In addition, the domestic and foreign sea breeze flexible industry has also ushered in a period of development opportunities. The company is currently an internationally leading enterprise with complete UHVDC transmission and flexible DC transmission equipment capabilities and overall solution capabilities. It has formed an UHV business system composed of UHVDC transmission of ±1100 kV and below, flexible DC transmission of ±800 kV and below, DC transmission maintenance and testing services. The company participated in the construction of a number of popular projects such as Baihetan-Zhejiang ±800 kV UHV, and won the bid for the German offshore wind power flexible straightening project, which has strongly enhanced Xu Ji's brand image and is expected to benefit from increased penetration rates of UHV and ocean breeze.
The digital development of domestic power grids is compounded by overseas market development, and the company's related business has great opportunities for development. In the domestic market, as the share of new energy sources continues to increase, the power grid pattern changes to a pattern where large power grids, microgrids, and local DC grids coexist, opportunities for digital smart grids have emerged, investment in power grids continues to increase, and smart distribution grid upgrades and transformation contain market opportunities. In terms of the international market, developing countries and regions such as Asia, Africa, South America, and the Middle East have strong demand for electricity construction, and there is an urgent need to upgrade existing power equipment. With the implementation of the “Belt and Road” strategy, cooperation between China and the economies along the route is getting closer, and the power grid interconnection plan provides an opportunity to expand exports of electrical equipment. The company's market development results were remarkable. During the reporting period, the domestic grid secondary business procurement ranking rose from 7th to 4th, and the share of electric energy meters ranked first in the State Grid procurement; overseas products broke through middle and high-end markets such as the Middle East, Europe, and South America, such as signing projects such as Chile's AMI Phase II and Italy's medium voltage measurement projects, and signing Saudi intelligent power distribution projects.
Profit forecast and investment rating: The company is the main domestic converter valve company and is expected to benefit from the rapid increase in UHV flexible penetration rate. We have adjusted the company's profit forecast. It is estimated that in 2024-2026, the company is expected to achieve operating income of 194/221/25.4 billion yuan and net profit to mother of 12/15/18 billion yuan. The PE corresponding to the current stock price is 24X, 19X, and 16X, respectively, maintaining a “buy” rating.
Risk warning: risk of policy change, risk of increased market competition, risk of fluctuating raw material prices, risk of overseas market expansion, risk of core competitiveness.