The smart meter standard upgrade will bring about a double increase in demand for replacement, benefiting from the upward trend in industry beta. The domestic smart meter market is experiencing an upward cycle. The number of tenders in 2021-2023 was 67.25 million, 69.84 million, and 71.41 million, respectively. The number of tenders for State Grid meters increased steadily. Referring to the high number of tenders in the previous round, the number of tenders in the previous round was 91.59 million units. There is still plenty of room for growth in the next few years, and the demand for electric meters driven by the landscape is connected to the grid. We believe that the high procurement volume in the cycle may exceed the 2014 high. The company's domestic smart meter sector has a stable market share all year round, and it is expected to fully benefit from the upward trend in the industry.
Overseas business is booming, and localization strategies are leading peers. In 2023, the company's overseas revenue reached 2,791 billion yuan, a year-on-year growth rate of 51.27%, accounting for 66.46% of revenue. The gross margin of overseas business remained around 41%, which is significantly higher than that of comparable companies in the same industry. By promoting the localization deployment of overseas supply chains, the company provides overseas customers with localized talent and technical support, global resources and service guarantees, and continues to build a localized delivery team. It is one of the few companies in the industry that can implement multiple projects in multiple countries.
Deeply involved in distribution network automation, 2024 will be the year of the beginning of overseas distribution networks. In 2023, the domestic revenue of the company's distribution network was 405 million yuan, an increase of 24.07% over the previous year. The bid amount for distribution network products on Guonan Network increased year after year, demonstrating the company's strong competitiveness in the distribution network market. Domestically, Guonan Network invests about 200 billion yuan on the distribution network side every year, and the company accounts for a small share. We believe that as the company accelerates its distribution network efforts, the company's distribution network business may develop rapidly. Overseas, the company's recloser has passed product certification in markets such as Brazil and Colombia, and 2024Q1 has won the bid for small-batch marketing projects in Brazil. The company is expected to quickly open up overseas distribution terminal business through channel sharing. 2024 may be the year the overseas distribution network starts.
Investment advice: We expect the company's 2024-2026 revenue to be 52.51/63.26/7.616 billion yuan, +25.02%/+20.39% year-on-year, net profit of 12.65/15.56/1.902 billion yuan, +28.77%/+22.98%/+22.27% year-on-year, corresponding EPS of 2.59/3.18/3.89 yuan, corresponding PE 19.45/15.82/12.94 times, respectively. The first coverage will give a “gain” ratings.
Risk warning: Risk of RMB exchange rate fluctuations; overseas market expansion falls short of expectations; domestic electricity meter tenders fall short of expectations; downstream demand falls short of expectations.