2024Q1 net profit to mother turned a year-on-year profit. Gross margin improved month-on-month. In 2023, the company achieved operating income of 2,369 million yuan, an increase of 40.99%; net profit to mother - 180 million yuan, a decrease of 58.07% over the same period; net profit after deducting non-return to mother - 195 million yuan, a decrease of 55.88% over the same period. The main reason why the company's performance fell short of expectations was increased competition in the industry, sales prices continued to fall, and gross margin declined. With 2024Q1, the company achieved operating income of 772 million yuan, a year-on-year increase of 95.39%; net profit attributable to mother was 3.3854 million yuan, which turned a year-on-year loss into a profit; net profit after deducting non-attributable net profit of 811,800 yuan, which turned a year-on-year loss into a profit; and a gross profit margin of 15.62%, a significant increase over the previous year.

The new energy business is rising steadily, focusing on expanding the energy storage business. Actively looking at the global market in 2023, the company's new energy business revenue was 1,940 billion yuan, an increase of 38.02% over the same period last year. The operating revenue of new energy (source, network, cargo, storage) equipment and systems was 1,082 million yuan, accounting for 45.69% of revenue, an increase of 51.93% over the previous year, becoming a strong new growth point. The company provides key energy storage equipment systems and EPC services for various energy storage power plants such as Luoxiao in Guidong, Rudong in Jiangsu, and Hongjiang in Huaihua. At the same time, relying on its market leading position in countries along the “Belt and Road”, the company continues to expand multi-energy complementary and source-network cargo storage application scenarios, and has won bids for a number of centralized energy storage, water optical storage, and multi-energy complementary projects in Uganda, Tanzania, Côte d'Ivoire, Pakistan, Cambodia and other countries.

The environmental protection business was repaired, and the application side continued to consolidate its position in the industry. In 2023, the company's environmental protection business revenue was 381 million yuan, an increase of 67.80% over the previous year, accounting for 16.08% of revenue. Water conservancy and water treatment automation products and overall solutions generated revenue of $325 million, accounting for 13.71% of revenue, an increase of 93.39% over the previous year. The company uses many industry-leading technology products such as intelligent aeration systems, magnetic coagulation systems, secondary water supply IoT gateways, internal pressure ultrafiltration membrane modules, and immersion ultrafiltration membrane modules, and has successively won bids for many important projects such as the world's largest single-plant desalinated water EDI project and the world's largest biosynthetic ecological industrial park water treatment and operation service.

Profit forecasting and valuation

The profit forecast was lowered and the “buy” rating was maintained. The company is a leading enterprise in power automation. Driven by policies and industry demand, the new energy storage business is growing rapidly. Considering the decline in profitability due to increased competition in energy storage systems, we lowered our 2024-2025 profit forecast and added the 2026 profit forecast. We expect the company's net profit to be 1.96, 3.13, and 409 million yuan respectively in 2024-2026 (net profit returned to mother was 3.92 million yuan and 618 million yuan before the reduction), turning a loss into profit in 2024, and increasing by 59.56% and 30.86%, respectively. The corresponding EPS is 0.49, 0.79, and 409 million yuan, respectively 1.03 yuan, corresponding PE is 17, 11, and 8 times, respectively.

Risk warning: Energy storage project construction falls short of expectations, downstream demand falls short of expectations, raw material costs have risen sharply, and industry competition has intensified.