The distribution network side has a solid layout, benefiting from domestic and foreign demand
The main business benefits from new energy consumption & the expansion capital expenses of emerging industries: three types of products: complete switchgear, box-type equipment (small boxes become the main), and system integration business (mainly prefabricated cabins). According to the downstream sector, new energy, power grids, and user terminals accounted for 38%, 17%, and 45% + of revenue respectively in 2023.
The core growth highlights are: 1) Small box products respond to industrial support demand trends for agricultural network transformation and new energy landscape storage, and quickly seize the market with cost-effective products. They have successively won bids for new energy power generation orders for new energy power plant projects of state-owned enterprises/central enterprises such as Huaneng, China Resources, Huadian, Datang, China Power Investment, etc.; 2) Compared with conventional civil substations, the on-site construction workload of prefabricated cabin products has been reduced by 70% compared to conventional civil substations, and the equipment installation workload has been reduced by 80%. Power solution projects; 3) Accelerate overseas markets The layout promotes regional business in Central Asia, Southeast Asia and other regions with the company's superior power distribution products.
Main business governance has improved, and net interest rate continues to rise: Along with the improvement of the company's gross margin and the optimization of profit and loss expenses, the company's net interest rate is expected to gradually increase from less than 5% in 2023 to 6% + after 2024, driving performance.
Optimistic about the profit elasticity of Special Calls
Sales side: The sales volume is expected to increase by 30% + year over year in '24.
Operating side: The charging volume of the Telekom platform was 9.3 billion kilowatts in '23, and the charging capacity is expected to increase by 30% + in '24. Considering the decline in the share of Teclai's own devices, the corresponding operating side revenue growth rate is expected to be 30-40% year-on-year. Looking at the growth of operations from a medium-term perspective, we expect domestic NEV ownership to rise to 53 million units in 2026, with a charging capacity of 9.3 billion kilowatts in 23, corresponding to 24.4 billion kilowatts in 26, which is 2.6 times that of 23.
From a current perspective, operational profit improvements: 1) equipment usage continues to increase; 2) SAAS platform revenue scale increases, corresponding to profit growth.
In the medium to long term, broader profit flexibility lies in electricity costs. By using energy storage batteries (whether it is a vehicle's power battery or an energy storage battery used step by step), Telco can profit from the price difference between peak and valley electricity bills. With the company's annual charging rate of 10 billion kilowatts, there is plenty of room for arbitrage.
Investment advice
The company has turned a loss into a profit in the charging business in '23, and the core behind the continuous improvement of power equipment in the main business in '24 is continuous optimization of governance & distribution demand beta. We anticipate that in 2024-2026, the company's overall revenue is expected to reach 186/227.2/28.2 billion yuan, with year-on-year growth rates of 27%/22%/24%, respectively. The corresponding net profit to mother is expected to reach 705/9.52/ 1.26 billion yuan, with year-on-year growth rates of 44%/35%/32%, respectively. Considering the company's medium- to long-term growth and excellent profit elasticity, coverage was given a “buy” rating for the first time.
Risk warning: grid investment falls short of expectations: vehicle sales fall short of expectations: industry competition intensifies; policy changes, estimates are subjective