Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 1,771 billion yuan, an increase of 17.59%; net profit to mother was 607 million yuan, an increase of 28.64% year on year; net profit after deducting non-return to mother was 525 million yuan, an increase of 47.54% year on year. 2023Q4 achieved operating income of 523 million yuan, an increase of 11.45% year on year, and realized net profit of 165 million yuan, a year-on-year decrease of 6.96% and a year-on-year increase of 22.35%. In 2023, the company plans to distribute a cash dividend of RMB 5 (tax included) for every 10 shares.
The gross margins of many businesses have increased dramatically, and profitability has improved markedly. By business, revenue from smart measurement and collection systems in 2023 was +17.35% to 1,436 billion yuan, gross margin +6.59pct to 47.31%; revenue from IoT sensors and accessories +127.81% to 112 million yuan, gross margin +12.14pct to 28.85% year over year; revenue from intelligent distribution products and systems was -29.56% to 79 million yuan, gross margin +5.38pct to 22.83% year over year. In 2023, the company's overall gross margin was +5.76pct yoy to 44.83%, and the net margin was +2.31pct yoy to 34.38%. Profitability improved markedly.
Domestic electricity meter demand was strong in 24, and the company's share of winning bids declined due to bid responses. On the industry side, the total number of tenders for State Grid meters in 2023 was 76.24 million and 23.3 billion yuan respectively; while in 2024 the first batch of State Grid tenders and the winning bid amount reached 46.53 million units and 12.4 billion yuan respectively, and the annual number of State Grid meter tenders increased by one batch to three batches compared to 2023, and domestic demand for electricity meters is expected to increase significantly throughout '24. However, from the company's perspective, the company won the bid amount of 161 million yuan in the State Grid's first batch of electricity meter tenders in 2024. Compared with the bid amount of 345 million yuan in the first batch of the State Grid in 2023, it is mainly due to the company's imperfect technical response to bid quotations and bid documents. In the future, as the responsiveness of bid documents increases, the company's winning bid amount is expected to rise.
Steadily promote new overseas markets to help future growth. In terms of charging piles, the company's European standard AC charging piles have obtained CE certification, American standard AC charging piles have passed ETL and FCC certification, and continue to promote DC charging pile certification. It is expected to further expand the European and American markets in the future. In terms of electricity meters, the company is the main supplier and strategic partner of electric power companies such as E.ON Germany and E.ON Hungary; with its subsidiary LOGAREX in the Czech Republic, the company is expanding multi-channel in the European market and is steadily promoting product certification related to new smart watches in Germany, and its business mainly covers European countries such as the Czech Republic, Germany, Poland, Bulgaria, and Hungary; in addition, the company is also actively developing markets in Southeast Asia, Central Asia and Africa, and the overseas meter business is expected to contribute to additional performance in the future.
Profit forecast, valuation and rating: Considering the decline in the company's share in the first batch of electricity meter tenders in 2024, we lowered the 24/25 and introduced the 26-year profit forecast. The company's net profit for 2024-26 is estimated to be 6.26/7.62 billion yuan (down 13% /14% /increase), respectively. The corresponding EPS for 24-26 is 1.23/1.50/1.74 yuan. The current stock price is 8 times PE for 24-26. The company's smart meter business is developing steadily and actively exploring overseas markets. It has a lot of room for growth in the future, and maintains a “buy” rating.
Risk warning: Electricity meter tenders fall short of expectations, overseas market development falls short of expectations, and market competition increases risks.