Key points of investment
Revenue for the year 23/24Q1 was +10%/+24% year over year, and net profit to mother was +11%/+14% year over year. The performance was in line with market expectations. In '23, we achieved revenue of 516, +10% year-on-year, and realized net profit of 7.2 billion yuan, or +11% year-on-year. Among them, 23Q4/24Q1 achieved revenue of 23 billion/7.7 billion, +8%/+24% year over year, and realized net profit to mother of 3 billion/ 600 million, +8%/+14% year over year. The results are in line with market expectations. Looking ahead to 24 years, the company plans to achieve revenue of 56 billion yuan, +8.6% year-on-year, gross profit margin of 26.8%, which is the same as the previous year, with expenses of 6.24 billion yuan and +12% year-on-year. We consider that the company has sufficient orders in hand, but that UHV, savings, etc. are long-term orders, and there is a problem with the pace of confirming receipt. Therefore, the above target setting is relatively steady, and it is expected that it will be exceeded.
The development of in-grid UHV and grid digitalization services is accelerating. The company revised its business caliber in '24. 1) In '23, smart grid revenue was 25.6 billion yuan, +3% year over year, gross margin was 28.9%, +1.0pct year on year.
23/24Q1 achieved +5.4%/+14.7% year-on-year grid investment, and infrastructure investment accelerated. The company successfully won the bid for 4 UHVDC projects including Hami and Chongqing, contributing to order flexibility; it also completed the operation of 6 pilot master stations for next-generation scheduling automation, and undertook the construction of secondary equipment projects such as centralized control stations and provincial spot system construction, laying the foundation for the steady growth of the sector in 24 years. 2) The 23-year integration sector achieved revenue of 11.1 billion yuan, +22% year over year, gross margin of 22.4%, and +0.2pct year over year. Digital business development accelerated, mainly due to business expansion such as strengthening network security and production and operation informatization.
Out-of-network business is advancing at an accelerated pace, and giant ships are not booming. Out-of-network business revenue in '23 was $15.6 billion, +35% year-on-year. 1) On the power generation side, the company's revenue from the low-carbon energy sector was +33%. In 23, it successively won bids for grid-based energy storage projects such as the South Grid Double Pumping Power Station and Guoneng Minqin Energy Storage to accelerate development in the field of traditional power generation and optical storage. We expect revenue growth of 30% + in 24 years. 2) Overseas business progressed smoothly in '23, achieving revenue of 1.4 billion yuan, +104% year-on-year, gross profit margin of 23.25%, and +5.43pct year-on-year. Major projects such as smart electricity meters in Chile, Brazilian screen protection cabinets, Saudi SVG, and South Africa energy storage were bid in 2016. Overseas UHVDC such as Brazil's Meishan Phase III Saudi Arabia is expected to bid for materials such as converter valves. The company is expected to gain a major share as a converter valve and safety leader.
Financial indicators showed steady performance. The gross profit margin for 23 was 26.8%, -0.3 pct year on year, 23 Q4/24Q1 gross margin of 23.74/24.7%, and -1.8 pct/-2.4 pct year on year. Net profit margin for 23 was 13.9%, +0.2pct year on year, 23Q4/24Q1 net profit margin 13.1%/7.7%, -0.02pct/-0.8pct year on year. The cost rate for the 23-year period was 10.8%, +0.6pct year-on-year, mainly due to a significant increase in employee remuneration and travel expenses. Net cash flow from operating activities in '23 was 11.44 billion yuan, +31% year-on-year. Cash flow was sufficient. End-term contract debt was 5.01 billion yuan, an increase of 33% over the beginning of the year, and active orders were abundant.
Profit forecast and investment rating: Considering the uncertainty of the delivery pace of the UHV project and the company's business plan, we lowered the company's net profit to the mother for 24-25 to 79.0/88.9 (previous value was 86.8/10.01 billion yuan). The net profit for 246 is 10.15 billion yuan, +10%/13%/14% compared to the current PE price, which is 26x, 23x, and 20x to maintain the “buy” rating.
Risk warning: Power grid investment falls short of expectations, UHV construction progress falls short of expectations, competition intensifies, etc.