The current market value of Samsung Medical has exceeded 40 billion yuan, and has broken through European electricity distribution for the first time. We believe that the company's valuation level and room for growth will further open up. In this report, we mainly discuss: 1) 2023 Company Stock Price Review?

2) How do you view the overseas distribution industry space? 3) Breaking through European power distribution for the first time, how can Samsung Healthcare's valuation be reshaped?

Reviewing 2023: Why is Samsung Healthcare's stock price rising rapidly?

Since 23Q1, the company's performance has continued to exceed expectations. In November 2023, the European Union issued an investment document to expand the power grid, and attention to the overseas distribution sector increased rapidly. Since then, the company released a series of favorable catalysts, such as the 2023 performance forecast and the 2024 core executive shareholding plan, and the stock price rose rapidly. This round is the third time since the company went public, and hit a new high. It is expected that the company's first breakthrough and implementation of the European order will drive the company's valuation to 25 times higher.

Distribution overseas is the company's second growth curve. How do you view the space in the overseas distribution industry?

Company: Domestic power distribution base is deep, and overseas distribution is expected to expand rapidly through reuse of overseas electricity channels. The subsidiary Oaks Intelligent Technology's product matrix has been perfected, and it has won domestic bids and maintained the first tier for many years. At present, the company's overseas power distribution has broken through the Middle East and European markets. Among them, the Greek transformer project won a bid amount of 466 million yuan. The progress and bid amount have exceeded expectations.

Industry: Power equipment going overseas is a long-term trend. The scale of global distribution transformers is expected to exceed 100 billion yuan in 2023, and the global transformer scale CAGR is expected to reach 6% in 2023-2027. 1) In 2023 and 24Q1, leading overseas power equipment companies achieved high growth in performance and active orders, and they are optimistic about the 2024 power grid business guidelines. Demand for overseas power grids is expected to continue to be high. 2) According to the European power grid investment draft guidelines, the investment scale related to upgrading power grid equipment (transformers, etc.) is estimated to be around 90 to 105 billion euros, accounting for 24% of the total investment budget. According to Powermag, global transformer revenue is estimated at US$41.6 billion in 2023, and we estimate that distribution transformers will be around US$14.6 billion during the same period. By region, the scale of distribution transformers in North America is expected to exceed 3.8 billion US dollars in 2027, and the CAGR will exceed 5.7% in 2023-2027; the scale of distribution transformers in Europe is expected to exceed 3.4 billion US dollars in 2028, and the CAGR is about 4.8% in 2028.

Breaking through European power distribution for the first time, how can Samsung Healthcare's valuation be reshaped?

The company broke through European power distribution for the first time, with high scarcity and steady performance. The valuation level is expected to rise 25 times against EATON (Eaton Power), a leading overseas electrical equipment company. Eaton Power's 2023 revenue was about US$232 billion, of which nearly 70% was in the electrical equipment business, and the 2024PE valuation was about 37.6-38.3 times. In comparison to Eaton, we believe there is still room for improvement in Samsung Healthcare's valuation. On the one hand, the company broke through European power distribution for the first time, and the scale of the bid was high, and the target attributes were scarce; on the other hand, the company's latest equity incentive guidelines have a performance assessment target of 30% non-net profit CAGR for distribution in 2025-26. Combined with overseas power grid demand and the company's ongoing orders, we believe that the company's performance target has been achieved to a high degree, and the valuation is expected to rise 25 times.

Profit forecasting and investment advice. The company's net profit for 2024-26 is estimated to be 23.02/29.62/36.57 billion yuan, up 20.9%/28.7%/23.4%. The company achieved its first breakthrough in European power distribution, which is highly scarce. The company's overall valuation is expected to increase 25 times against Eaton in the US and maintain a “buy” rating.

Risk warning: Domestic and foreign electricity distribution tenders fall short of expectations, delivery of electricity distribution orders falling short of expectations, medical operation risks, raw material price increases, forecast bias and valuation risks.