Description of the event

The company released its 2023 annual report, with revenue of 12.46 billion yuan in 2023, up 18.25% year on year; net profit to mother of 1,559 billion yuan, up 27.75% year on year; deducted non-net profit of 1,421 billion yuan, up 21.63% year on year. Among them, 23Q4 revenue was 3.879 billion yuan, up 9.72% year on year; net profit to mother was 411 million yuan, a year-on-year decrease of -5.49%, after deducting non-net profit of 310 million yuan.

Incident comments

By sector, the company's switch products achieved revenue of 5.582 billion yuan, an increase of 10.87% year on year, coil products achieved revenue of 2,747 billion yuan, an increase of 23.13% year on year, reactive power compensation products achieved revenue of 1,850 billion yuan, an increase of 39.32% year on year, smart device products achieved revenue of 1.05 billion yuan, an increase of 6.61% year on year, and general engineering contracting achieved revenue of 924 million yuan, an increase of 23.44% year on year. In 2023, benefiting from the increase in power grid construction, the company's switch, coil, and reactive power compensation products all achieved revenue growth of about 500 million yuan, which was the main factor in the increase in revenue.

In terms of gross margin, the company's overall gross margin reached 29.5%, an increase of 3.17 pct over the previous year. Specifically, the gross margin of all sectors of the company increased to varying degrees. Among them, the gross margin of switch products reached 33.45%, an increase of 6.74 pct over the previous year, which was the main force in the increase in gross margin, mainly benefiting from higher sales prices, lower costs and increased delivery of high-voltage products. In addition, the gross margin of coil products increased by 0.96 pct to 29.66%, and the gross margin of reactive power compensation products increased by 0.19 pct to 24.92%. The gross margin of smart equipment products increased by 1.87 pct to 34.01%, and the gross margin of general engineering contracts also increased by 34.01%. 1.01pct reached 12.78%.

In terms of the cost ratio, the company's overall expenses increased in 2023. The total four rates reached 14.88%, up 2.13 pct year on year, and all cost rates increased. Among them, the sales rate increased 0.26 pct year on year to 4.67%, the management rate increased 0.83 pct year on year to 2.87%, the R&D rate increased 0.97 pct year on year to 7.36%, and the financial rate increased 0.07 pct year on year to -0.02%. In 2023, the company expanded its personnel size and increased various investments to lay the relevant foundation for subsequent development.

In terms of cash flow, the company's cash flow performance in 2023 was excellent. Net operating cash flow reached 2,272 billion yuan, an increase of 115.4% over the previous year, and surpassed 2 billion yuan for the first time in history. Of these, the company achieved a net operating cash flow of 1,574 billion yuan in a single Q4, indicating that the company increased its repayment efforts in Q4, which showed that the company's profit quality was good.

In terms of overseas business, the company's overseas revenue in 2023 was 2,158 billion yuan, up 15.71% year on year, accounting for 17.32% of revenue; overseas gross margin reached 38.55%, up 13.05 pct year on year, a significant increase, mainly due to the increase in the share of stand-alone structures, etc. New overseas orders of 4 billion yuan were signed in '23, an increase of 34% over the previous year, laying the foundation for a high increase in delivery in '24.

In 2023, the company's revenue basically reached the annual target of 12.6 billion yuan, and the formula achieved new orders of 16.513 billion yuan, an increase of 36.22% over the previous year, exceeding the annual target of 15.8 billion yuan. In 2024, the company plans to achieve operating revenue of 15 billion yuan, an increase of 20% over the previous year, and plans to increase orders of 20.6 billion yuan, an increase of 25% over the previous year. Looking forward to the future, the company is expected to expand categories, expand markets, open up new growth curves across industries, and further guarantee the achievement of goals through platform-based and process-based management methods.

The company's net profit attributable to shareholders of the parent company in 2024 and 2025 is estimated to be 2 billion yuan and 2.45 billion yuan respectively, corresponding to PE 25 and 21 times, respectively. Maintain a “buy” rating.

Risk warning

1. Domestic grid investment falls short of expectations;

2. Overseas market expansion falls short of expectations;

3. The pace of promotion of new products falls short of expectations.