Company fundamentals:
The company is one of the few leading private enterprises in the industry that fully covers primary and secondary equipment. In the industry, it has continued to surpass the cycle. The compound annualized growth rates of revenue and net profit in the past 20 years were 25% and 21%, respectively, exceeding the growth rate of power grid investment and comparable companies. The first half of '24 is expected to achieve revenue of 6.17 billion yuan, +16% year-on-year, and net profit to mother of 0.89 billion yuan, or +27% year-on-year.
Investment logic:
Recommended logic 1: The diversification of the product matrix continues to expand, and the basic platform is stable across multiple links within the network.
1) Product matrix expansion: The company has been deeply involved in the field of power equipment for more than 30 years, and businesses such as switches, coils, reactive power compensation, and intelligent equipment have continued to be arranged horizontally; segmented products such as GIS, isolators, circuit breakers, transformers, and relays continue to break through higher voltage levels.
2) Stable internal grid pattern: The construction of the main grid is directly related to new installations on the power generation side, such as new energy. Currently, grid investment is catching up with power investment. The total amount of power grid investment in the first half of 2024 increased sharply by 24% over the same period last year. The company's share of winning bids in many areas of the online market is leading, and the share of combined electrical appliances, capacitors, transformers, relay protection, etc. ranked in the top three among listed companies.
Recommended logic 2: Accelerate investment in global power grid equipment, and gradually implement long-term overseas strategies.
The growth of new energy installations, development on the electricity side, and equipment aging have been replaced by the three major drivers of the global power grid. The operating performance of many leading companies exceeded expectations in 24 years (for example, the revenue growth rate of Eaton's American Electric Division and Siemens Energy Grid Division increased to 10-12% and 32-34%, respectively), and exports of transformers and high voltage switches continued to grow rapidly. After more than ten years of development, the company's overseas business has entered a stage of rapid growth, covering more than 100 countries and regions. Overseas revenue in 23 years was 2.16 billion yuan, +16% year over year, and gross margin increased to 38.6%, +13pct year on year.
Recommended logic 3: Lay out energy storage and automotive electronics to add new momentum for future growth.
1) The company established a subsidiary as early as 2011 to lay out high-capacity energy storage and distributed power sources. Currently, it has a solution group for energy storage products, covering all scenarios on the power generation side, network side, large-scale industrial, commercial and household use, and is expected to achieve breakthroughs with abundant customer resources.
2) In the automotive sector, the 70.4% share acquisition of Alkyl Carbon (the first domestic supercapacitor company to supply passenger cars) was completed in July '23, strengthening close cooperation with many companies.
Profit forecasts, valuations, and ratings
The company has clear planning, leading technology/management/cost control, and equity incentives to continue to stimulate employee motivation. We expect to achieve net profit of 2.04/2.54/3.11 billion yuan in 24-26, +31/24/ 22% year-on-year, with a 24-year PE valuation of 30 times. The target market value for 24 years is 61.3 billion yuan, and the target price is 79.2 yuan/share, giving a “buy” rating for the first time.
Risk warning
Investment/overseas expansion/new product promotion falls short of expectations, raw materials rise, competition intensifies