Incidents:
The company recently announced its 2023 annual report and 2024 quarterly report. In '23, it achieved revenue of 12.46 billion yuan, YOY +18.25%; realized net profit attributable to mother of 1,559 billion yuan, YOY +27.75%; realized net profit after deduction of non-return to mother of 1,421 billion yuan, YOY +21.63%. In Q1 '24, we achieved revenue of 2,658 billion yuan, YOY +22.36%, realized net profit of 363 million yuan, YOY +66.32%, and realized net profit of 341 million yuan without deduction to mother, and YOY +86.96%.
Comment:
Orders were overfulfilled in 23, and the 24-year order target remained high. The company's revenue target for 2023 is 12.6 billion yuan, and the order target is 15.8 billion yuan (excluding tax), of which additional orders of 16.513 billion yuan (excluding tax) were added in 23, exceeding the target. The company announced its operating goals for 24 years: revenue target of 15 billion yuan, YOY +20%; order target of 20.6 billion yuan, YOY +25%.
The growth rate of power grid investment is expected to be 8-10%. The company's order target maintains a high growth rate, highlighting the company's operating confidence. The motivation for the company to surpass the industry's growth rate mainly comes from: 1. Network business increases market share; 2. GIS and other products are boosted and entered the high-end market; 3. Develop off-network markets and increase off-network market share; 4. Strengthen construction and explore overseas markets; 5. Actively develop new products, innovate technology, and enrich the product line. 6. The company's excellent organizational structure and management, including sales service system construction, supply chain/engineering service platform construction, etc.
Revenue from coil/reactive power compensation products increased significantly, and the profitability of switch products increased dramatically.
On the revenue side, in 2023, the company's switch products achieved revenue of 5.582 billion yuan, YOY +10.87%; coil products achieved revenue of 2,747 billion yuan, YOY 23.13%; reactive power compensation achieved revenue of 1,850 million yuan, YOY+ 39.32%; smart devices achieved revenue of 1.05 billion yuan, YOY+ 6.61%; and general engineering contracting achieved revenue of 924 million yuan, YOY+ 23.44%.
Various business segments have achieved varying degrees of growth. Among them, revenue from reactive power compensation and coil products increased significantly. We think the main reasons are: 1. New energy installations are growing rapidly, driving demand for reactive power compensators; 2. The company's transformers are developing well, overseas growth is high, etc. On the profit side, the company's overall gross margin in 2023 was 29.50%, YOY+ 3.17 pct, net margin was 12.91%, YOY+0.69pct; Q1 2024, the company's gross margin was 30.7%, and net margin was 13.6%.
Among them, the gross margin of the switch category in 2023 was 33.45%, YOY+ 6.74pct; the gross margin of the coil type was 29.66%, YOY+0.96 pct; the gross margin of the reactive power compensation category was 24.92%, YOY+0.19 pct; the gross margin of the smart device category was 34.01%, YOY+1.87 pct; the gross margin of the general engineering contract was 12.78%, YOY+ 1.01 pct. The company's gross margin increased significantly in '23, especially the gross margin level of the switch category. The main reasons are: 1. The scale of the company's revenue increased, and the scale effect reduced costs; 2. Increase investment in automation to improve production efficiency; 3. Increase investment in R&D and reduce product development costs; 4. Strengthen project delivery management and increase gross profit margin; 5. Overseas gross margins have increased dramatically.
The company has been operating overseas for many years, seizing overseas power equipment opportunities. Demand for electricity has increased in emerging industries such as AI, which in turn has led to an increase in demand for power equipment. Furthermore, the rapid development of new energy sources has also brought demand for the construction, upgrading and replacement of power grids at home and abroad, and the demand for global power grid investment is improving. The company has been adhering to the overseas strategy for a long time. In 2023, the overseas market added 4.01 billion yuan in orders, an increase of 34% over the previous year.
The company's products have achieved breakthroughs in many countries such as Italy, the United Kingdom, Belgium, Denmark, Australia, etc., and many products have completed qualification certification in Spain, France, Singapore, etc., gradually moving towards globalization. In 2023, the company's overseas revenue was 2.558 billion yuan, YOY +15.71%, overseas gross margin was 38.55%, and YOY+13.05pct.
Actively developing new products and laying out new businesses, the company accumulates momentum for future growth. The company focuses on technological innovation, has a forward-looking vision, and gradually launches new businesses, which has supported the company's continuous growth for more than ten years. In terms of new business, the company is actively developing flexible DC transmission, energy storage, static synchronous cameras, automotive electronics, medium voltage switches, bushings, intelligent operation and maintenance, and low voltage switches. In terms of supercapacity, the company completed the acquisition of ene-crystalline carbon energy in 2023, controlled ene-crystalline carbon energy and included it in the scope of the company's merger. In the field of automotive power supplies, supercapacitor products have successfully obtained major designated projects from car companies to provide core components for their vehicle backup power systems; supercapacitors have also made breakthroughs in the field of power, and have received initial recognition from customers and active pilot applications in innovative application scenarios such as static synchronous cameras (SSC) and distribution network backup power supplies. However, revenue from the supercapacitor business in 2023 fell short of expectations, and new business opportunities and newly acquired customer targets have not yet been able to generate determined revenue in the short term. Therefore, related goodwill impairment has affected the company's profit level in the short term. In terms of energy storage, the company has successively released station-level energy storage system products, actively expanded grid-based SVG and complete energy storage systems, actively explored applications in the field of AC/DC hybrid electricity distribution, and built overseas household storage channels one after another. Currently, there are many cooperative channel suppliers. The company's accumulation of new businesses is expected to lay the foundation for future company growth.
Profit forecast and investment rating: We expect the company's 2024-2026 revenue to be 15.4, 185, and 21.7 billion yuan, respectively, up 23.6%, 20.2%, and 17.4% year on year; net profit to mother will be 21.2, 26.1, and 3.1 billion yuan, respectively, up 35.6%, 23.4%, and 18.4% year on year, maintaining the “buy” rating.
Risk factors: grid investment falls short of expectations, fluctuating raw material prices, increased market competition, etc.