Profitability has been steadily improving, and cost control is reasonable. 2023 revenue of $959 million, +30.06% year on year; net profit to mother of $158 million, +222.43% year on year; deducted non-net profit of 150 million yuan in a single quarter, +330.53% year over year. In terms of profitability, the company's gross margin in 2023 was about 39.24%, up 15.28 pcts year on year; net sales margin was 16.75%, up 10.01 pct year on year. In terms of cost control: The fee rate for the 2023 period was 20.27%, an increase of 0.55pct over the previous year. Among them, the sales expense ratio was 7.46%, a year-on-year decrease of 0.05pct; the management expense ratio was 15.18%, up 0.49pct year-on-year.

The power transmission and transformation composite external insulation business is growing rapidly, and its market share ranks among the highest in the industry. In 2023, the power transmission and transformation composite external insulation business achieved revenue of 92 million yuan, an increase of 24.82% over the previous year, and a gross margin of 17.3%.

The company's composite insulators for transmission lines are used in UHV lines by about 15%; according to statistics from the State Grid's public tender data in 2022, the company's long-life line composite insulators market share is about 9.1%, ranking third in the industry.

Rubber seal products have a high market share, gradually increasing the coverage of overseas customers. In 2023, the rubber sealing business achieved revenue of 195 million yuan, an increase of 28.26% over the previous year, and a gross margin of 43.29%. The company is a leading manufacturer of rubber seals for power equipment in China. It is estimated that the company's share of the domestic oil-immersed power equipment rubber seals market is about 60-70%. The company has rich customer resources. It has established good business partnerships with more than 1,000 customers, including domestic customers such as China Southern Power Grid Corporation and internationally renowned electrical equipment suppliers represented by Hitachieneregy and GE Group, and has gradually built a global marketing network to enhance the breadth and depth of coverage of overseas customers.

The advantages of composite insulator products for substations are remarkable, and the penetration rate in the domestic market is an absolute advantage. In 2023, the substation composite insulator business achieved revenue of 653 million yuan, an increase of 28.99% over the previous year, and a gross margin of 42.29%.

The product has good comprehensive performance and obvious cost advantages over the entire life cycle, covering all types of equipment and all voltage levels in substations and converter stations. The penetration rate of this industrial product in 110-500kv substation projects in Europe and the US is over 40%; the proportion of composite insulators used in more than 70 UHV stations built since 2009 is as high as 90%. The company supplies more than 80% of these products, and has an absolute advantage and dominance in domestic national grid and China Southern Power Grid UHV AC/DC projects.

Investment advice: We expect the company to achieve revenue of 1,575/22.20/2992 billion yuan in 2024-2026, net profit to mother of 3.18/4.51/591 million yuan, EPS of 0.74/1.04/1.37 yuan, and PE of 34/24/18 times, respectively. This is the first coverage, giving it a “recommended” rating.

Risk warning: grid investment falls short of expectations; risk of economic fluctuations; competition increases risk.