According to the Zhītōng Cáijīng APP, Haitong International has released a research report maintaining its 'outperform' rating on Dongfang Electric Corporation (01072) based on the company's high-speed growth in orders for 2023. It is predicted that the company's revenue for 2024-2026 will be RMB 69.69/77.68/83.59 billion, with a corresponding net income attributable to the parent company of RMB 4.3374/5.18/5.72 billion. Based on the company's new layout in the new energy sector, the perpetual growth rate has been raised from 0.2% to 0.5%. According to the DCF model, the target price has been raised from HKD 12.3/share to HKD 15.73/share.

Haitong International's main viewpoints are as follows:

Revenue and net income have maintained steady growth.

Dongfang Electric Corporation released its 2023 and 2024 Q1 financial reports, with the company achieving revenue of RMB 60.68 billion in 2023, a year-on-year increase of 9.6%, and net income attributable to the parent company of RMB 3.55 billion, a year-on-year increase of 24.23%. In 2024 Q1, the company achieved revenue of RMB 15.05 billion, a year-on-year increase of 2.28%, and net income attributable to the parent company of RMB 0.906 billion, a year-on-year decrease of 11.12%. From the revenue structure perspective, in 2023, the revenue of clean and efficient energy generation sector accounted for 33.93%, a year-on-year increase of 7.4%; the revenue of renewable energy equipment sector accounted for 22.81%, a year-on-year decrease of 4.13%; the revenue of engineering and service sector accounted for 19.81%, a year-on-year increase of 0.77%; and the revenue of modern service industry sector accounted for 5.47%, a year-on-year increase of 1.54%. In 2023, the company achieved new effective orders of RMB 86.532 billion, a year-on-year increase of 31.95%, with ample growth momentum.

The gross margin has steadily improved.

In 2023, the comprehensive gross margin was 18.83%, an increase of 0.57% compared to the same period last year. Among them, the gross margin of thermal power equipment sector was 21.33%, an increase of 0.19% year-on-year; the gross margin of gas turbine equipment sector was 12.15%, an increase of up to 12.64% year-on-year, achieving a turnaround; the gross margin of operation and service sector was 29.77%, an increase of 3.96% year-on-year; the gross margin of wind power equipment sector was 9.94%, a decrease of 1.17% year-on-year, mainly due to the decrease in bidding price of wind turbine; the gross margin of engineering and service sector was 12.49%, an increase of 2.18% year-on-year. In 2024 Q1, the company's gross margin reached 18.69%, an increase of 0.86% year-on-year, and the gross margin is expected to further improve.

The three expense ratio has remained at a low level, thickening the profit.

The company's period expenses in 2023 were RMB 1.297 billion, an increase of 11% year-on-year, which is less than the revenue growth rate. Among them, the sales expense was RMB 1.587 billion, an increase of 7% year-on-year, and the management expense was RMB 3.4 billion, a year-on-year increase of 9.2%, mainly due to the year-on-year increase in employee compensation, repair costs and travel expenses. The three expense ratio was 8.2%, an increase of 0.1% year-on-year, maintaining a low level. In terms of research and development, the company increased its R&D investment in 2023, and R&D expenses increased by 20.85% year-on-year, with an expense ratio of 4.53%, an increase of 0.42% year-on-year, and 545 effective patents were added, and five projects won first prizes at the provincial and ministerial level for scientific and technological progress.

Vigorously developing domestic and foreign markets.

In terms of the domestic market, the company has stabilized the market order backlog, consolidated and improved its position in traditional industries, and accelerated the breakthrough in new industries and fields. It is promoting the leading positions of water, coal, nuclear, and gas. In terms of overseas markets, the company achieved revenue of RMB 7.66 billion in 2023, accounting for 12.62%, a year-on-year increase of 3.71%, striving to enter the first echelon of wind power, completing international type certification for key models, and striving for overseas breakthroughs of its own brands. It will also expand overseas marketing institutions and outlets in an orderly manner.

Risk Warning: 1. The relevant policies are not as expected; 2. The fierce market competition leads to a significant decline in gross margin; 3. The prices of raw materials have significantly increased; 4. Exchange rate risks.