Core views:
Stable performance in 2023, and factors such as the pace of project delivery affected the decline in 24Q1 results. The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 7.67 billion yuan, +0.8% year on year, net profit to mother of 830 million yuan, +3.4% year on year, and gross margin of main business was 21.6%, +0.9 pct year on year. 24Q1 achieved revenue of 1,019 million yuan, or -22.98% year on year, net profit to mother of 0.12 million yuan, -83.22% year on year. Performance fluctuations were mainly due to a year-on-year decrease in revenue from integrated collection and other businesses, as well as a late bid period for stock projects last year. 24Q1 confirmed limited revenue, and the main business revenue decreased by 304 million yuan year on year.
The company is the core ICT software service provider within the State Grid system, fully benefiting from the digital intelligent construction of power grids.
Currently, China is actively building a new power system. According to the State Grid e-commerce platform, the winning bid amount for the State Grid headquarters digitization project increased from about 6.5 billion yuan in 2021 to about 9.3 billion yuan in 2023. The company led the bid share, with an overall market share of 16%. Digital project delivery is expected to begin in 24Q2, and digital investment may be accelerated in 24H2. Delivery of the 3rd batch and 4th batch of digital projects in '23 was concentrated in 24Q2-Q3, and the first batch of digital projects in '24 was tendered as planned. Most deliveries were concentrated in 24H2. The company is expected to benefit as a national network information and communication service provider. Furthermore, according to the company's major asset replacement related transaction announcement in 2019, Xinshan Group promised to eliminate business overlap with listed companies through business adjustments or asset and business restructuring within 5 years.
Profit forecasting and investment advice. We maintain our previous profit forecast. The company's net profit due to mother in 2024-2026 is expected to reach 10.41/12.09/1,331 billion yuan, corresponding year-on-year growth rates of 25.6%/16.2%/10.0%, respectively. Refer to comparable company valuation levels, consider the development opportunities brought to the company by power grid digital intelligence, and give the company a net profit of 25.0 x PE in 2024, corresponding to a reasonable value of 21.66 yuan/share, and maintain a “buy” rating.
Risk warning. Grid investments fall short of expectations; risk of reliance on key core customers; risk of maintaining technological advantages.