The company's 2023 and 1Q24 results are in line with our expectations
The company announced its 2023 and 1Q24 results: revenue for the full year of 2023 was $51,573 billion, +10.13% year over year; net profit to mother was 7.184 billion yuan, +11.44% year over year; net profit after deducting non-return to mother was 6.950 billion yuan, +10.43% year over year. 1Q24 achieved revenue of 7.699 billion yuan, +24.25% year over year; net profit to mother was 596 million yuan, +13.30% year over year. The performance is in line with our expected development trends
The network business is growing steadily, and the information technology business is growing rapidly. I am optimistic that UHV will contribute flexibly to the increase in performance.
In 2023, the company's online business achieved revenue of 35.91 billion yuan, +1.98% year-on-year. By sector, the company's smart grid segment revenue was +2.57% to 25.64 billion yuan, and gross margin was +0.98ppt to 28.91% year over year; the revenue growth rate of the digital energy integration sector was impressive, +21.73% to 11.13 billion yuan. We believe that the company has won plenty of digital orders from the State Grid, which is expected to support the steady growth of the company's performance. In 2023, the State Grid completed the UHV “four straight and two transfers” tender, and the company won the UHV order of 3.281 billion yuan. Looking ahead, we expect UHV to approve an average of 4-5 DC lines per year from 2024-2025, maintaining a high level, while the flexible DC penetration rate is expected to increase. We are optimistic that the company will benefit from UHVDC construction and the technological alpha brought by flexible DC converter valves.
The low-carbon energy business increased year-on-year, and continued to boost emerging businesses. In 2023, the company's off-network business achieved revenue of 15.55 billion yuan, +34.96% year over year. Among them, the company's low-carbon energy sector achieved revenue of 9.64 billion yuan, +33.47% year over year, and gross margin -2.25ppt to 23.9% year over year. We believe this is mainly due to product restructuring (such as an increase in the proportion of energy storage business, etc.). The company signed a new contract of 58.287 billion yuan for the full year of 2023, an increase of 12.64% over the previous year. The company plans to make every effort to promote large-scale development of emerging businesses such as IGBT, energy storage, Xinchuang, and Haifeng to form new efficiency growth points. In 2023, the company's overseas revenue was 1.39 billion yuan, +104.07% YoY, gross profit margin 23.25%, +5.43ppt.
Strengthen scientific and technological innovation and increase the dividend ratio to give back to shareholders. In 2023, the company's gross margin/net margin was 26.2%/13.9%, respectively, -0.2/+0.1ppt, respectively; R&D investment continued to increase, and the sales/management/R&D/finance expense ratios were +0.28/+0.018/+0.08ppt, respectively. In 2023, the company plans to distribute a cash dividend of 4.328 billion yuan, accounting for 60.25% of net profit in 23, an increase of nearly 20ppt over 2022. At the same time, the 2024 semi-annual dividend ratio plan is not less than 40%.
Profit forecasting and valuation
Considering the company's increased investment in business development, we lowered our 2024/2025 net profit by 9.4%/7.0% to 8.08 billion yuan/8.992 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 25.3 times/22.5 times. Due to the upward shift in the industry valuation center, it remains ahead of the industry rating and the target price of 29.20 yuan, which corresponds to 29.3 times the price-earnings ratio of 2024 and 26.1 times the price-earnings ratio of 2025, with 16.0% upside compared to the current stock price.
risks
Grid investment fell short of expectations, overseas geopolitical risks, and increased market competition.