Revenue and net profit maintained steady growth. Dongfang Electric released financial reports for 2023 and 2024Q1. The company achieved revenue of 60.68 billion yuan, up 9.6% year on year, and realized net profit of 3.55 billion yuan, up 24.23% year on year; 2024Q1 achieved revenue of 15.05 billion yuan, up 2.28% year on year, and net profit to mother of 906 million yuan, down 11.12% year on year; judging from the revenue structure, the clean and efficient energy power generation sector accounted for 33.93% of revenue in 2023, an increase of 7.4 pct year on year; renewable energy equipment sector revenue The proportion was 22.81%, down 4.13pct; the engineering and service sector accounted for 19.81%, up 0.77pct year on year; the modern service sector accounted for 5.47% of revenue, up 1.54pct year on year. In 2023, the company achieved new efficiency orders of 86.532 billion yuan, an increase of 31.95% year on year, with sufficient growth momentum.
Gross profit margins have increased steadily. The comprehensive gross margin in 2023 was 18.83%, up 0.57pct from the same period last year, of which the gross margin of the thermal power equipment section was 21.33%, up 0.19pct; the gross margin of the combustion engine equipment section was 12.15%, an increase of 12.64pct over the same period last year, achieving correction; the gross margin of the operation and maintenance service section was 29.77%, an increase of 3.96pct year on year, and the gross margin of the wind power equipment section was 9.94%, down 1.17pct year on year, mainly due to the decline in the winning bid price of fans; the gross margin of the engineering and service section was 12.49%, up 2.18 pcts year on year. 2024Q1's gross margin reached 18.69%, up 0.86 pct year on year, and gross margin is expected to increase further.
3. Keep the rate low and increase profits. The company's expenses for the 2023 period were 1,297 billion yuan, up 11% year on year, less than the revenue growth rate. Of these, sales expenses were 1,587 billion yuan, up 7% year on year, and management expenses were 3.4 billion yuan, up 9.2% year on year. The main reason was that employee remuneration, repair expenses, and travel expenses increased year on year. The three rates were 8.2%, up 0.1 pct year on year, maintaining a low level. In terms of R&D, the company increased R&D investment in 2023. The cost rate increased by 20.85% year on year, the cost rate was 4.53% year on year, up 0.42 pct year on year , 545 new valid patents were added, and 5 projects won the first prize for scientific and technological progress at the provincial and ministerial levels.
Vigorously explore domestic and overseas markets. On the domestic market side, stabilize the market order market, consolidate and enhance the dominant position of traditional industries, and accelerate breakthroughs in new industries and fields. We must continue to take the lead in promoting water, coal, nuclear, and gas. In terms of overseas markets, the overseas market achieved revenue of 7.66 billion yuan in 2023, accounting for 12.62%, an increase of 3.71 pct over the previous year. The company's wind power strives to enter the first tier, complete international type certification for key models, seek overseas breakthroughs for independent brands, and expand overseas marketing institutions and distribution in an orderly manner.
Profit forecast and investment recommendations: Based on the company's rapid growth in orders in 2023, we expect the company's operating income to be $696.9/776.8/83.59 billion yuan in 2024 to 2026, and corresponding net profit of $43.3.74/51.8/5.72 billion yuan. Based on the company's new layout in the field of new energy, we raised the sustainable growth rate from 0.2% to 0.5%. According to the DCF model, we raised the target price from HK$12.30 to HK$15.73 per share, maintaining the “superior over market” rating.
Risk warning: 1. Relevant policies fall short of expectations; 2. Gross margin dropped sharply due to fierce market competition; 3. Prices of raw materials rose sharply; 4. Exchange rate risk.