Incident: The company released the 23rd Annual Report & 24Q1 Performance Report. In '23, it achieved revenue of 51,573 billion yuan, +10.13% year on year, net profit to mother of 7.184 billion yuan, +11.44% year over year, net profit after deducting non-return to mother of 6.950 billion yuan, +10.43% year over year. Among them, Q4 achieved revenue of 23.06 billion yuan, +8.45% year over month, and +122.98% month on month; net profit to mother reached 3,023 billion yuan, +8.32% year over year, and +81.94% month on month. 24Q1 achieved revenue of 7.699 billion yuan, +24.25% year-on-year, -66.54% month-on-month, and realized net profit of 596 million yuan, +13.69% year-on-year and -80.29% month-on-month. Results for the full year of '23 achieved steady growth.
Profitability remains stable, and new orders continue to grow. In terms of profitability, the company's gross margin/net margin in '23 was 26.80%/14.83%, respectively, -0.24pct/+0.09pct year-on-year, and profitability remained stable.
In terms of R&D investment, R&D expenses for 23 years were 2,712 billion yuan, accounting for about 5.26% of revenue, or +0.18pct compared to the previous year. It is mainly used to develop smart grids, artificial intelligence, IGBT, and silicon carbide chips. As of the end of '23, the company's active orders were 49.852 billion yuan, and new orders were signed for the whole year at 58.287 billion yuan, +12.64% year-on-year. New orders continued to grow.
Investment in power grids is growing steadily, and UHV construction is in full swing. According to the company's annual report, China's power grid construction investment reached 5275 billion yuan in 2023, an increase of 5.4% over the previous year, and continued to grow steadily. The company won the bid for four ±800kV UHVDC projects in Hami - Chongqing, Jinshang - Hubei, Longdong-Shandong, and Ningxia-Hunan, as well as digital construction projects for 13 1000kV UHV substations including Nanyang in Henan and Lanjiang in Zhejiang. With the increase in new energy sources, DC transmission volume has increased dramatically, and flexure has become the most likely solution. In the “15th Five-Year Plan”, it is expected that the proportion of flexible straightening will be greatly increased, which will further strengthen the company's long-term performance.
Continued expansion of international business, when leading power grid equipment companies went overseas. The company focuses on South America, the Middle East and Southeast Asia. It has successfully signed major projects such as smart meters in Chile, screen control cabinets in Brazil, SVG in Saudi Arabia, and energy storage in South Africa. Projects such as the supply of the Indonesian AMI main station system and the Chilean substation project have been successfully put into operation.
Investment advice: The company is expected to achieve net profit of 82.23/93.09/10.692 billion yuan in 24-26, and EPS of 1.02/1.16/1.33 yuan respectively, corresponding to the current PE of 24.6/21.7/18.9X, respectively, maintaining a “buy” rating.
Risk warning: grid investment falls short of expectations, UHV investment falls short of expectations