Incident: On April 25, the company released its annual report and quarterly report. In 2023, it achieved revenue of 51,573 billion yuan, +10.13% year over year, net profit of 7.184 billion yuan, +11.44% year over year, after deducting non-net profit of 6.95 billion yuan, +10.43% year-on-year, and EPS 0.89 yuan. 24Q1 achieved revenue of 7.699 billion yuan, +24.25% year-on-year, net profit of 596 million yuan, +13.69% year-on-year, after deducting non-net profit of 548 million yuan, +16.38% year-on-year. Overall, it was slightly below expectations.
Low-carbon energy and digital energy integration contributed to increased growth, and smart grids are developing steadily. 1) Smart grid: Revenue of 25.635 billion yuan, accounting for 49.71%, up 2.57% year on year. The gross profit margin was 28.91%, up 0.98 pcts year over year. The company adjusted its business classification. The smart grid business mainly includes power grid automation, relay maintenance and flexible transmission, and the overall development is steady. 2) Digital energy integration: Revenue of 11.134 billion yuan, accounting for 21.59%, up 21.73% year on year; gross profit margin 22.38%, up 0.15 pcts year on year. Digital energy integration contributed 42% to revenue growth in 2023, mainly due to the company's business expansion such as strengthening network security and informatization of production and operation. 3) Low-carbon energy: Revenue of 9.638 billion yuan, accounting for 18.49%, a year-on-year increase of 33.47%, gross profit margin of 23.92%, a year-on-year decrease of 2.25 pcts. Low-carbon energy is the fastest-growing business segment. In 2023, it contributed 51% to revenue growth. It is mainly due to a sharp increase in revenue from new energy businesses such as energy storage and photovoltaics, but competition is intense, and gross margin levels have declined. 4) Industrial connectivity: Revenue of 3.169 billion yuan, accounting for 6.14%, a year-on-year decrease of 3.01%, gross profit margin of 26.47%, and a year-on-year decrease of 2.50 pcts. The scale of revenue from the rail transit business declined, and the average level of revenue and gross margin declined slightly. At the end of 2023, the company had orders of 49.852 billion yuan, of which 27.427 billion yuan was newly signed in 2023. The power grid leader can be expected to grow steadily.
Off-net business continued to grow, and overseas business revenue doubled. In 2023, off-grid business revenue was 15.554 billion yuan, an increase of 34.96% over the previous year. Thanks to the company's expansion of power grid automation technology to rail transit, industrial control, intelligent manufacturing, etc., there have been gains in power generation, energy storage, rail transit, etc. In addition, overseas revenue in 2023 was 1,394 billion yuan, up 104.07% year on year, gross profit margin 23.25%, up 5.43 pcts year on year. The company is steadily promoting overseas business. Currently, the company has overseas offices in 12 countries and regions, including Brazil, Indonesia, Greece, and Chile, and its products and services span more than 110 countries and regions.
24Q1 gross margin improved month-on-month. The company's gross profit margin in 2023 was 26.80%, -0.25pct year-on-year. 24Q1 gross profit margin of 24.68%, -2.43pcs/month-on-month +0.95pcts. 24Q1 R&D was increased, and rates were raised. The cost rate for the 2023 period was 13.07%, +0.7pct year-on-year. The cost rate for the 24Q1 period was 17.9%, -2.7 pcts/month-on-month +9.0pcts. Among them, the company increased R&D, and the 24Q1 R&D expenditure rate was 9.1%, and -0.6 pcts/month-on-month +4.8pcts. Net profit margin declined in 24Q1. The company's net profit margin in 2023 was 13.93%, +0.16pct year-on-year. 24Q1 net profit margin of 7.74%, -0.75pcts/month-on-month -5.4pcts.
Continued research on IGBT core equipment is expected, and UHV orders are expected to be released. The company developed the world's first controllable conversion valve, and continuously promoted the localization and industrialization of IGBT, the core equipment of the converter valve. The 4500V/3000A IGBT was connected to the network at the converter station in Yanqing, Zhangbei, and 1700V and 1200V IGBT devices were used in batches on clients. Four UHVDC lines are expected to be approved for commencement in '24: Shaansu-Anhui, Gansu-Zhejiang (Rouzhi), Mengxi-Beijing-Tianjin-Hebei (Rouzhi), and Shaanxi—Henan. Furthermore, recent ocean breezes have continued to catalyze, and the trend is clear from far and wide. We anticipate that the total investment in flexible technology between 2024-2025 may reach 1005 billion yuan, and the investment in converter valves may be 60.3 billion/14.6 billion yuan. The company's share of DC control and converter valve products exceeds 50% all year round. Benefiting from the rising UHV boom, the company's high-margin business is expected to expand rapidly.
Investment advice: The “dual carbon” target is forcing the power grid to accelerate the transformation to an energy internet. As an intelligent and digital leading enterprise in all aspects of the power grid, the company has obvious advantages in technological innovation and industrial chain integration, and will fully benefit from structural investment changes brought about by power grid transformation; it has broad off-grid markets such as new energy, rail transit, water conservancy, municipal administration, industry and mining, and has great potential for growth against international leaders such as ABB and Siemens. The company's revenue for 2024-2025 is estimated to be 57.350 billion yuan, 64.502 billion yuan, net profit to mother of 8.022 billion yuan, 9.108 billion yuan, EPS of 1.00 yuan and 1.13 yuan. The PE corresponding to the current stock price is 25.21 times and 22.21 times, maintaining the “recommended” rating.
Risk warning: risk of grid construction falling short of expectations; risk of increased competition; risk of overseas development falling short of expectations.