Key points of investment:
The company is deeply involved in telecommunication informatization and provides one-stop services from power consulting and design, system integration, engineering construction to operation and maintenance. Revenue in 2023 was $1,062 million, +22.96% YoY; net profit to mother was $256 million, +13.09% YoY. 2024Q1's revenue was 141 million yuan, -23.71% YoY; net profit attributable to mother was 0.23 million yuan, -42.44% YoY. By product, system integration revenue in 2023 was 696 million yuan, or +2.58%, accounting for 65.56% of revenue; construction and operation and maintenance revenue of 307 million yuan, +125.27%, accounting for 28.93% of revenue, gross profit margin 43.14%; power design revenue of 51 million yuan, +11.14% year on year, accounting for 4.79% of revenue, gross profit margin 63.72%. By region, Jiangsu Province's revenue in 2023 was 551 million yuan, +35.16%, accounting for 51.92% of revenue; Beijing's revenue was 240 million yuan, +43.75%, accounting for 22.63% of revenue, with a gross profit margin of 31.88%; Anhui Province had revenue of 182 million yuan, +6.59% year over year, accounting for 17.13% of revenue and 30.62% gross profit margin.
Electricity informatization has entered the stage of scientific development, and the scale of IT investment in power grids has increased. ① After a period of iteration from the 1960s to 2005, since 2005, the construction of power informatization has entered the stage of scientific development. Informatization has completed integration with the production, management and operation of power companies, and has further evolved into intelligent and digital forms. ② The amount of investment in China's power grid has been rising. During the “14th Five-Year Plan” period, the investment scale of the Southern Grid was about 670 billion dollars; the investment scale of the State Grid was about 350 billion US dollars (about 2.24 trillion yuan), totaling about 3 trillion yuan. The State Grid invested 501.2 billion, 523.7 billion, and about 580 billion dollars respectively from 2022 to 2024; the South Grid invested 895 billion, 114.2 billion, and about 140 billion dollars from 2022 to 2024. Historical grid investment was mainly concentrated on the transmission and transformation side. Investment in distribution networks will increase to 30-50% during the 14th Five-Year Plan period. Investment in digital power grids and the Internet of Things will increase, and the share of investment in related intelligent and information technology fields is expected to rise sharply. ③ Manufacturers that do not yet have a monopoly position in the power information technology market are research institutes and information technology construction units within the power system, such as large-scale units such as China Electric Power Research Institute Co., Ltd., Guodian Nanrui Technology Co., Ltd., and Guodian Nanjing Automation Co., Ltd.; the other category is external power system manufacturers, such as Shenzhen Hailianxun Technology Co., Ltd., and Jiangsu Jinzhi Technology Co., Ltd., which have a certain market position in their respective segments.
We are committed to developing new smart grid technologies, expanding business scale, and cultivating profit growth points. ① Under the digital development trend of smart grids, the company's system integration will make corresponding strategic plans in technology research and development, including 1) ground-based gimbal weather devices; 2) next-generation substation safety communication network systems; 3) upgrading and development of online intelligent substation inspection systems; 4) research and development of next-generation substation inspection robots; 5) research and development of inspection algorithms based on artificial intelligence. ② The company will continue to increase investment in design professionals and technology, expand the existing design team, strive to reach the leading level of the company's overall design expertise in Jiangsu Province, and strive to reach the leading level of intelligent distribution grid professional design capabilities in China. ③ In the engineering construction and operation and maintenance business, the company will summarize the management experience of the construction of power grid communication networks and other projects in accordance with the national grid construction process specifications and the strategic requirements of the national grid, continue to improve the safety quality and process level of power grid communication network and other engineering construction, and continuously research and explore intelligent construction. The company must not only have a deep understanding of the operating status, networking methods, and technical parameters of the equipment, and be familiar with how to handle various faults, but also train a large number of network experts, continuously improve operation and maintenance management capabilities, and actively apply advanced transmission technology and network application technology to customers in a timely manner.
Successfully develop business outside the province and actively lay out overseas markets. ① In terms of expansion outside the province, the company carried out in-depth optimization of the marketing system in the second half of 2022, divided sales divisions in the South and North, and built strong business teams in Guangdong and Beijing. The company successfully entered the Guangdong market, obtained business and fulfilled orders. ② In terms of going overseas, the company found that the new energy business has great potential for development on a global scale. The new energy industry in many countries is still in its infancy, or there is a significant gap compared to the domestic market. Based on this judgment, the company will actively expand related businesses and promote the development of overseas markets. The popularity of microgrids is an irreversible trend. To this end, the company has set up a professional overseas expansion team to promote the development of new energy business on a global scale.
As of April 16, 2024, the company had repurchased 4.293,900 shares, accounting for 1.80%. ① The company held a meeting on November 6, 2023 to review and pass the “Proposal on the Company's Share Repurchase Plan”. The company plans to use no less than RMB 80 million (inclusive) and no more than RMB 120 million (inclusive) of its own capital to repurchase some RMB common stock (A shares) shares already issued by the company through centralized bidding transactions for the company's employees' shareholding plans or equity incentives. The maximum repurchase price is 38.64 yuan/share. ② On November 21, 2023, for the first time, the company implemented the repurchase of 92,000 shares through a special securities account for share repurchase, accounting for 0.04% of the company's current total share capital. The highest transaction price was 27.30 yuan/share, the lowest transaction price was 27.10 yuan/share, and the total transaction amount was RMB 2,5032 million (excluding transaction fees). ③ As of April 16, 2024, the company has repurchased 4.293,900 shares of the company's shares through a dedicated stock repurchase securities account, accounting for 1.7953% of the company's current total share capital. The highest transaction price was 27.30 yuan/share, the lowest transaction price was 16.73 yuan/share, and the total capital used was 99.777 million yuan.
Profit forecasts and investment recommendations:
The company issued the 2024 restricted stock incentive plan (draft). The assessment year is the two fiscal years 2024-2025, once for each fiscal year. The performance assessment goals for each year are as follows: 1) The first vesting period, based on the company's 2023 performance, the 2024 revenue growth rate is not less than 25% or the 2024 net profit growth rate is not less than 25%; 2) The second vesting period is based on the company's 2023 performance, and the 2025 net profit growth rate is not less than 56% or the 2025 net profit growth rate is not less than 56% less than 56%.
We believe that the company is a leader in electricity informatization. Continuously exploring markets outside the province and deploying overseas, it is expected to open up room for growth. We expect that in 24-26, the company's system integration equipment products will grow at 30.00%, 28.00%, and 28.00%, and the company's revenue growth rates will be 29.9%, 31.2%, and 31.8%, respectively. As the share of business outside the province increases, the gross margin will decrease due to cost increases. We expect that in 24-26, the gross margins of the company's system integration equipment products will be 35.35%, 35.15%, and 34.95%, respectively, and the company's overall gross margin for 24-26 will be 38.2%, 37.3%, and 36.4%.
We expect the company's revenue for 2024-2026 to be 1,379/2,384 billion yuan, net profit to mother of 3.24/4.17/542 million yuan, and corresponding EPS of 0.97/1.25/1.63 yuan, respectively. Combined with the current industry stage and the company's growth rate and barriers, the company was given 25-30 times the 2024 dynamic PE, with a 6-month reasonable value range of 24.32-29.18 yuan. For the first time, coverage was given a “superior to the market” rating.
Risk warning: Electricity reform policies fall short of expectations; development of new regions falls short of expectations; industry competition intensifies.