Key points of investment
Short-term pressure on performance. Net profit to mother fell 69.36% year on year in 2023. In 2023, the company achieved operating income of 2,694 billion yuan, up 14.30% year on year; net profit to mother of 78 million yuan, down 69.36% year on year; net profit after deducting 54 million yuan, down 76.34% year on year; gross profit margin 19.36%, down 7.31 pct year on year. In the first quarter of 2024, the company achieved operating income of 497 million yuan, a year-on-year decrease of 14.42%; net profit to mother of 51 million yuan, a year-on-year decrease of 46.46%; deducted non-net profit of 47 million yuan, a year-on-year decrease of 48.83%; and a gross profit margin of 17.37%, a year-on-year decrease of 11.57 pcts, an increase of 3.21 pcts over the previous year.
Equipment sales achieved relatively rapid growth, and EPC competition and gross margin fell sharply by product. In 2023, the company's power engineering construction, intelligent electricity service, and power equipment business achieved operating income of 15.04 billion yuan and 1,049 billion yuan respectively, a year-on-year decrease of 2.83% and an increase of 58.59%, respectively. Gross margins were 17.30% and 18.75%, respectively, and gross margin decreased by 9.99 pcts and 0.09 pcts year-on-year. Due to increased competition in the industry, the company's gross margin for power engineering construction and intelligent electricity services declined sharply.
Consolidate the Jiangsu market and accelerate business development outside the province
By region, in 2023, the company's revenue outside of Jiangsu Province was 836 million yuan, an increase of 29.36% over the previous year, accounting for 31.03% of revenue. Currently, the provinces involved in the company's business outside of the province include Anhui, Zhejiang, Hunan, Inner Mongolia, Tianjin, Guangdong, Sichuan, Shaanxi, Guizhou, Jiangxi, Henan, Shandong, etc. The subsequent company will consolidate the Jiangsu market, further increase its market share, accelerate market development in the Shanghai market, Beijing market, and the southwest region, actively develop business outside the province, and increase the share of business outside the province.
Deeply involved in the field of power intelligence, the coverage of the Electric Power Cloud Platform has continued to expand. The company has been in the field of power intelligence for 8 years. It has developed a SCADA system with independent intellectual property rights, and also launched the “Electric Man Cloud Platform”. It has introduced next-generation digital technologies such as cloud computing, big data, and the Internet of Things on the basis of traditional power facility operation and maintenance, to reduce users' electricity consumption and maintenance costs and improve users' electricity efficiency. The “Electric Man Cloud Platform” is connected to 4,521 substations, 16 channel service providers, and manages about 30 million kilowatt-hours of electricity per day; it is connected to 39 photovoltaic stations, 9 energy storage stations, and more than 400 charging piles. A total of 94704 power IoT terminals are connected, and the average annual management electricity consumption exceeds 55 GkWh.
Profit forecasting and valuation
The profit forecast was lowered and the “buy” rating was maintained. The company is a leading EPCOS one-stop power service provider, benefiting from the demand brought about by increased investment in power grids, upgrading distribution networks and new energy construction. Considering the pressure on profitability due to intense competition in the equipment business, we lowered our 2024-2025 profit forecast and added the 2026 profit forecast. We expect the company's net profit to be 2.74, 3.15, and 354 million yuan respectively in 2024-2026 (net profit to mother before the reduction was 3.66 million yuan and 510 million yuan), corresponding EPS was 1.32, 1.52, and 1.71 yuan/share, respectively, and the corresponding PE was 14, 12, and 11 times, respectively.
Risk warning
Investment in power grids fell short of expectations; business expansion outside the province fell short of expectations, and market competition intensified.