Core views

The company's 2023 results were in line with expectations, and the distribution of electric and medical two-wheel drives increased. Looking ahead to 2024, in the smart power distribution sector, the company has sufficient orders in hand, the domestic bid amount on Guonan Network remains industry-leading, and overseas markets will continue to explore Western Europe, Latin America, etc.; in the medical service sector, the company will continue to steadily expand the rehabilitation hospital market through self-construction and mergers and acquisitions. In the medium to long term, the company will actively promote the business growth of non-grid customers and major industry customers domestically, and will actively promote the distribution business overseas based on the original electricity customer channels overseas.

occurrences

Recently, the company released the 2023 Annual Report and 2024 Quarterly Report

According to the company's announcement, in 2023, the company achieved revenue of 11.463 billion yuan, an increase of 25.99%; realized net profit of 1.904 billion yuan, an increase of 100.79%; realized net profit after deduction of 1,669 billion yuan, an increase of 57.66% over the previous year; and basic earnings per share was 1.35 yuan/share. The 2023 profit distribution plan is: The company plans to distribute a cash dividend of 6.50 yuan (tax included) for every 10 shares to all shareholders.

With 2024Q1, the company achieved operating income of 3,025 million yuan, an increase of 34.53% over the previous year; realized net profit of 364 million yuan, an increase of 35.15% over the previous year; realized net profit without return to mother of 375 million yuan, an increase of 41.24% over the previous year; and basic earnings per share was 0.26 yuan/share.

Brief review

The performance was in line with expectations. The 2023 revenue, net profit to mother, and net profit after deduction of non-return to mother were 11.463 billion yuan, 1,904 billion yuan and 1,669 billion yuan respectively, up 25.99%, 100.79%, and 57.66% year-on-year respectively. The results were in line with expectations. The profit side grew faster than the revenue side. Mainly, the company continued to innovate technology, reduce costs and increase efficiency, and gross margin increased by 5 percentage points.

By business, the company's smart electricity distribution revenue in 2023 was 8.436 billion yuan, up 23.9% year on year. Mainly 1) domestic grid tenders continued to lead, and the business growth rate of non-grid customers such as rail transit and general contract engineering customers, and major customers in industries such as new energy central enterprises; 2) overseas orders grew rapidly, and business in key markets such as Europe, the Middle East, and America grew rapidly. By the end of 2023, the company's electricity distribution business had accumulated orders of 10.494 billion yuan, an increase of 22.09% over the previous year; the cumulative amount of orders in China and overseas was 5.969 billion yuan and 4.525 billion yuan respectively, up 9.94% and 42.93% year-on-year respectively. Medical service revenue was 2,783 billion yuan, an increase of 34.73% over the previous year. Mainly, the company also acquired and built 10 new hospitals on the basis of continued growth in the existing hospital stock. Revenue from financial leasing and consulting services amounted to $42 million, a year-on-year decrease of 35.77%. By region, domestic revenue in 2023 was 9.30 billion yuan, up 27.41% year on year; foreign revenue was 1,961 billion yuan, up 19.55% year on year.

2024Q1, the company's revenue, net profit attributable to mother, and net profit after deducting non-return to mother were 3,025 million yuan, 364 million yuan, and 375 million yuan, respectively, up 34.53%, 35.15% and 41.24% year-on-year, respectively. The results were in line with our expectations. By the end of the first quarter, the company's electricity distribution business had accumulated orders of 12.462 billion yuan, an increase of 33.18% over the previous year; the cumulative amount of orders in China and overseas was 6.963 billion yuan and 5.499 billion yuan, respectively, up 18.45% and 58.07% year on year.

The smart power distribution sector focuses on digital transformation and globalization strategies. The medical service sector continues to improve the chain rehabilitation medical system. Looking ahead to 2024, the company will continue to be based on the dual main business of intelligent electricity distribution and medical services. The smart distribution sector will focus on digital transformation and globalization strategies, and the medical service sector will continue to improve the chain rehabilitation medical system to help continue to grow in performance.

Intelligent power distribution sector, 1) The company will seize the opportunities of digital transformation of global power customers and continue to make efforts in the field of new power systems and new energy system construction. In January 2024, the company won 836 million yuan in China Datang Group's 2024-2025 framework procurement of wind power photovoltaic prefabricated substation (Chinese, oil transformation) projects, won a bid of 477 million yuan in the CGN 2023-2024 box-conversion equipment frame procurement project, and won 395 million yuan in the bidding and procurement of the national grid metering equipment in April 2024. It won a bid of 59 million euros for the three-phase oil-immersed copper winding transformer project in the HEDNO tender project of the Greek Electric Power Authority. 2) The company will continue to deepen its global strategy, improve the international marketing network and supply chain platform, and accelerate the development of strategic markets in Western Europe and Latin America. By the end of 2023, the company's overseas sales network had covered more than 70 countries and regions. It had 5 overseas factories in Brazil, Mexico, Indonesia, Germany and Poland, and had new breakthroughs in the distribution and electricity consumption business.

In the medical service sector, the company will continue to build a rehabilitation medical service chain system featuring critical illness rehabilitation. In 2023, the company added 10 new hospitals. As of the end of 2023, the total number of hospitals under the company was 28, including 22 rehabilitation hospitals. Business revenue accounted for 47% of medical service revenue. It is expected that in 2024, the company will continue to expand the hospital layout through mergers and acquisitions+self-construction, and at the same time actively participate in critical care rehabilitation department construction and summit forums to enhance brand influence.

Continued technological innovation and internal cost reduction and efficiency helped increase gross margins in 2023 and 24Q1. The company's gross margins were 33.99% and 31.20% respectively, up 5.11 pcts and 0.75 pcts year-on-year respectively, mainly due to the company's continuous technological innovation and internal cost reduction and efficiency. The management expense ratio was 6.99% in 2023, up 0.95pcts year on year, mainly due to the increase in combined hospitals and employee remuneration of enterprises not under the same control; 24Q1 was 6.29%, down 0.25 pcts year on year. In 2023 and 24Q1, the sales expense ratio was 7.42%, 7.46%, up 0.3 pcts and 1.27 pcts year on year, mainly due to the increase in resource investment in the early stages of overseas market development; the R&D cost ratio was 4.11% and 3.56%, up 0.52 pcts and 0.03 pcts year on year, mainly due to the company continuously increasing R&D investment in order to enhance product competitiveness and introduce R&D professionals; financial expenses ratio -0.08% and 0.61%, up 0.08 pcts and 0.56 pcts year on year.

In the short term, I am optimistic about the company's sufficient electricity orders and continued layout of rehabilitation medicine; in the medium to long term, I am optimistic about the company's overseas distribution business. The company has sufficient orders in hand, the domestic bid amount on Guonan Network will maintain industry leadership, and overseas markets will continue to expand Western Europe, Latin America, etc.; in the medical service sector, the company will continue to steadily expand the rehabilitation hospital map through self-construction and mergers and acquisitions. In the medium to long term, the company will actively promote the business growth of non-grid customers and major industry customers domestically, and will actively promote the distribution business overseas based on the original electricity customer channels overseas. We expect the company's revenue in 2024-2026 to be 14.388 billion yuan, 17.749 billion yuan, and 21,642 billion yuan respectively, up 26%, 23%, and 22% year-on-year net profit for 2024-2026 is expected to be 2.32 billion yuan, 2,823 billion yuan and 3.475 billion yuan respectively, up 21%, 23% and 23% year-on-year respectively. Based on the closing price of 3.448 yuan/share on May 28, 2024, 2024, PE will be 21, 17, 14 times Maintain a “buy” rating.

Risk analysis

1) Management risk of scale expansion: As the company's business scale continues to expand, higher requirements are placed on market development, production and operation, personnel management, technology development, internal control, etc., which may bring certain management risks to the company.

2) Industry policy risks: Some products in the company's intelligent distribution sector are greatly affected by the national grid investment policy. If power grid companies reduce tenders, it may adversely affect the company's business. With the continuous deepening of the reform of China's medical and health care system and the gradual improvement of the social health insurance system, there may be certain adjustments and improvements in industry-related regulatory policies. If the company fails to quickly adapt to changes in market rules and regulatory policies, it may have a certain adverse impact on the company's operations.

3) Investment risk: In the process of going overseas and implementing localized operations, the company may have certain investment and operation risks due to major differences between foreign laws, policy systems, and the domestic business environment. The investment in building a new rehabilitation hospital is large, and the return on investment period is long, and there is a risk that the investment will not be able to be recovered.

4) Medical operation risks: Hospitals have integration and management risks after mergers and acquisitions, and hospital operations have risks related to medical safety, medical quality, and hospital operation.