Investment highlights
Once again, it covered China Xidian (601179) to give it a rating that outperforms the industry. The target price is 8.48 yuan, which corresponds to the 2024/2025 valuation ratio of 34.0/23.9 times. The reasons are as follows:
China Denso's major state-owned enterprises, state-owned enterprise reforms have accelerated the improvement of quality and efficiency. The company covers all categories of primary transmission and distribution equipment, undertakes major national projects for a long time, and leads the industry with technology, but there is still some room for improvement in terms of refinement, cost reduction and efficiency. The company is currently directly controlled by China Electric Equipment Group Co., Ltd., and we believe that the company is expected to become the core entity of CLP Electric Equipment to achieve its strategic goals. With the gradual improvement of the central enterprise assessment system, we are optimistic that the company will strengthen fine management, improve profitability, and accelerate the acquisition of order fulfillment performance.
Domestic market: UHV construction has accelerated, and the company's steady position has fully benefited. Grid investment is rising. We expect the year-on-year growth rate of national power grid project investment to reach about 10% in 2024, and UHV is expected to approve and start “four straight and two transits” in 2024. The company maintains a stable share of UHV AC/DC equipment. In 2023, UHV added orders of about 8 billion yuan, ranking first. Considering that the UHV construction cycle is usually 1.5 to 2 years, we believe that the company's high-margin UHV orders are expected to confirm revenue one after another starting this year, bringing greater performance flexibility to the company. Looking ahead, we expect the State Grid UHV tender amount to remain high from 2024 to 2025. Under a relatively stable market pattern, we are optimistic that the company will continue to receive orders to support subsequent performance growth.
Overseas markets: Grid investment is speeding up, and the company has a wide range of long-term layout channels. Changes on the power generation and consumption side have boosted investment in global power grids. The company has a long history of going overseas. It has been exporting for a long time in South Asia, East Asia, North Africa, East Africa, and West Africa, and is deeply involved in overseas channels. In recent years, it has also focused on developing East Asian, Saudi, European and South American markets. The “XD” brand has formed a strong reputation in the international market. China Western Power's overseas business is large, has a lot of project experience, and is more extensive in overseas channels and base construction. We believe that the company can use its advantages to become a leading overseas enterprise under CLP Denso and fully enjoy the increase in performance brought about by the improved climate of the sea.
What is our biggest difference from the market? The market believes that the company is benefiting from the beta rise in the power grid investment industry. We are optimistic that while the company's operating quality continues to improve, the domestic and overseas layout plus in-grid and off-grid two-wheel drive is expected to become a leader in power transmission and distribution equipment through the cycle.
Potential catalysts: The company obtains domestic and overseas orders, and accelerates the release of quality and efficiency performance.
Profit forecasting and valuation
We expect the company's EPS for 2024-2025 to be 0.25 yuan, 0.35 yuan, and CAGR of 43.3%, respectively.
Once again, it covered the “outperforming industry” rating and a target price of 8.48 yuan. The current stock price and target price correspond to 30.7/21.6x P/E and 34.0/23.9x P/E in 2024/25, respectively, implying a potential increase of 10.56%.
risks
Raw material prices fluctuate, grid investment falls short of expectations, geopolitical and trade policy changes.