The 2023 results are in line with our expectations, and the 1Q24 results are lower than our expectations. The company announced the 2023 and 1Q24 results: the full year of 2023 achieved revenue of 7.673 billion yuan, up 0.76% year on year; net profit to mother was 828 million yuan, up 3.43% year on year; net profit after deducting non-return to mother was 786 million yuan, up 1.26% year on year. 1Q24 achieved revenue of RMB 1,019 million, or -22.98% YoY; net profit to mother of RMB 12 million, or -83.22% YoY. The 2023 results were in line with our expectations; the 1Q24 results fell short of our expectations, mainly due to delays in revenue recognition for service projects and a reduction in equipment collection contracts.
Development trends
Revenue recognition accelerated in 4Q23, and short-term pressure on 1Q24. In 4Q23, the company concentrated on confirming that it won the bid for a portion of the State Grid digital service contract in 2023, and the net profit for 4Q23 was +27%/+424% compared to the previous month, respectively.
However, due to the delay in the digital tendering of the State Grid in 2023, some of the contracts deferred to 2024 have not yet been accepted in 1Q24. As a result, the company's confirmed revenue was affected to a certain extent. Coupled with the Guanglin case winning the lawsuit during the same period of the year to obtain non-operating income of 0.28 billion yuan, and the expiration of tax benefits led to a decrease of 05 billion yuan in other revenue, which put pressure on the company's 1Q24 performance in the short term. Recently, the State Grid launched the first batch of digital tenders in 2024. We believe that with the gradual implementation of new orders and the sequential acceptance of in-hand orders, the company's business situation is expected to improve quarterly.
The digitalization of electricity drives the steady growth of the company. 1) Digital electricity services: Achieved revenue of 2,056 billion yuan in 2023, +24.4% year-on-year. In 2023, the company will support the promotion and launch of marketing 2.0 by 13 provincial companies. In 2024, it plans to complete promotion and implementation in 7 online provinces, adding new businesses such as electricity transactions. We expect the sector to maintain a remarkable growth rate in 24. 2) Cloud network infrastructure: Achieved revenue of 3.639 billion yuan in 2023, -6.6% year-on-year. Looking ahead, the company plans to deepen cloud network computing power application services and vigorously develop technological integration between artificial intelligence and power grid applications. 3) Enterprise digital application: Achieved revenue of 1,955 billion yuan in 2023, -4.6% year-on-year. The i State Grid platform launched nearly 1,700 mobile apps, and the peak daily activity exceeded 720,000. We believe that the business foundation continues to be stable and is expected to support the company's steady growth.
Profitability is increasing steadily, and R&D investment continues to increase. The gross margin/net margin for 2023 was 21.3%/10.8%, respectively, +0.9/+0.3ppt. Among them, the gross margin of the cloud network infrastructure/enterprise digitalization/power digitization sector was +2.9/+0.2/-2.3ppt to 20.4%/25.6%/19.9%, respectively. Looking ahead, we think profitability is expected to increase year by year as the company's outsourcing ratio declines and withdraws from low-margin integration businesses. In 2023, the company's sales/management/R&D/finance expense ratios were +0.15/+0.23/ +1.24/-0.15ppt, respectively; net operating cash flow was 919 million yuan, up 8.02% year on year.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 19.9x/17.3x. Maintaining an industry rating and a target price of 19.60 yuan, corresponding to 23.1 times the price-earnings ratio of 2024 and 20.1 times the price-earnings ratio of 2025, there is 16.3% upside compared to the current stock price.
risks
The digital tender for power grids fell short of expectations, and a single major customer was too concentrated.