Company Overview: Leading composite external insulation products for domestic power systems, developing overseas markets with product advantages

The company was founded in 1996 and has now established business cooperation with electrical equipment manufacturers such as ABB, GE, and Siemens. The products are used in 100+ countries and regions around the world, accounting for 50% + of overseas revenue in '23.

At the performance level, the company significantly accelerated in 2023, achieving net profit of 1.58 billion yuan and 64 million yuan, yoy +222.4%/+329.7%, respectively; profitability was quickly restored, and the gross margin of 2020-2024Q1 was 45.4%/34.9%/24.9%/40.1%/48.4%, respectively. 2024Q1

Main business: Insulator products cover substations, transmission lines, and power distribution. The company's product application areas include substations, transmission lines, and power distribution. The main technical route is composite insulators. In 2023, the company's revenue share of composite outer insulation for substations, composite outer insulation for transmission and transformation lines, and rubber seals was 68.0%/9.6%/20.3%, respectively.

Insulator industry level: With its 30-year+ maintenance-free technical advantages, the service life dimension makes up for the shortcomings of composite routes

Insulators can be divided into porcelain, glass, and composite according to the material. Currently, the insulation outside of domestic transmission lines is mainly porcelain insulator routes. We think the main reason is the gap in service life (the average lifespan of porcelain, glass, and composite is 15-25 years, 40 years, and 7 years, respectively), but composite insulators have the advantages of light weight, no zero value, high strength, and no breakage.

One of the advantages of the company's composite insulator products is that they have achieved 30 years+maintenance-free (due to comprehensive evaluation of theory, testing and engineering application status tracking), which exceeds the average service life of porcelain insulators in terms of service life, and successfully solves the pain points of traditional composite insulators.

At present, the company's line composite insulators have achieved pilot engineering applications for a full range of 110kV-1000kV voltage levels in China; breakthroughs have also begun overseas (including Brazil, the United States, the United Kingdom, etc.).

Downstream level: Accelerated investment in domestic UHV and overseas power grids is expected to drive up industry demand1. Domestic market: We expect to enter the peak operation period of UHV projects in 24-25. In order to improve the transmission capacity of important channels and key sections, it is expected that both transmission and receiving high voltage/ultra-high voltage substations will grow, which in turn will also drive the growth of upstream insulator demand.

2. Overseas markets: Major global economies are speeding up the pace of grid investment. Multinational grid interconnection is one of the important trends in future grid development. Currently, many regions around the world have proposed relevant plans. We expect that the relevant plans will advance or will continue to drive investment growth in related power equipment.

Profit Forecast and Valuation:

We are optimistic about the company's own technical advantages. In the future, we can expect to benefit from the increase in demand in the insulator industry driven by the growth in global investment in transmission and distribution, and the continued growth of its own market share. We expect the company's 24-26 revenue to reach 15.18, 22.23, and 2,985 billion yuan respectively, yoy +58.3%/46.5%/34.3%, net profit to mother of 3.38, 4.69, 598 million yuan, yoy +113.1%/39.0%/27.3%, respectively.

We selected leading companies in different segments of the power equipment industry (involving products going overseas or partial business overlap), Jinpan Technology, Huaming Equipment, and China Xidian as comparable companies. According to WIND's consensus expectations, the comparable company's average PE is 30.5X in 2024. We gave the company a 2024 30.5X valuation, with a target price of 23.82 yuan for the first time, and gave it a “holding” rating.

Risk warning: Power grid investment is less than expected risk; market competition risk; raw material price fluctuation risk; overseas business operation risk; estimates in this article are subjective and are for reference only.