Intelligent electricity distribution and medical service dual leader, broad room for growth

The company is based on the two major fields of intelligent electricity distribution and medical services, and has become a leader in the domestic industry. We believe that the company's two main businesses have a lot of room for future development, the electricity meter business still has broad space in overseas markets, the intelligent power distribution business is expected to resonate at home and abroad through industry trends, and the medical sector is expected to expand steadily. We forecast net profit to mother of 2.337/2.921/3.638 billion for 24-26, respectively. We expect the net profit of the company's smart electricity distribution and other/medical services businesses in 2025 to be 2.42/0.5 billion yuan respectively. As of October 17, comparable to the company's 25-year Wind consensus average PE is 16/27X, respectively. Considering that the company is leading in multiple market segments in the field of intelligent power distribution, we have given the two businesses a 25-year 20/27X PE with a target price of 43.90 yuan, covering the first time, and giving them a “buy” rating.

Smart electricity use: the share of overseas meters is expected to increase to drive growth

The company's share breakthroughs in new overseas regions have brought significant room for growth, and the country is at a high point in the replacement cycle. There is still plenty of room for improvement in the penetration rate of smart meters in many overseas regions. In addition, replacements and upgrades contribute additional increases. The company's overseas revenue in '23 was 1.96 billion yuan (mainly electricity consumption). Currently, the dominant regions include markets such as Eastern Europe, Northern Europe, the Middle East, and Latin America. The company continues to increase its radiation area. We expect the revenue CAGR of the overseas meter business to reach more than 20% in 24-26, driven by the growth of new markets such as Mexico, Western Europe, and Africa in the future.

The domestic market is currently in a replacement cycle. In the first two rounds of the State Grid tenders for 59.69 million units in '24, we expect the annual tender volume to exceed 90 million units. The company's share is at the top, and revenue is expected to rise along with the industry.

Intelligent power distribution: leveraging industry style, domestic and overseas dual resonance

Domestic grid investment is expected to start a new upward cycle, and structurally, it is expected to lean towards distribution grids. From January to July '24, the tender amount for State Grid distribution transformers reached 7.15 billion, an increase of 27% over the same period. The company's share of winning bids in the field of distribution transformers has been at the top for a long time. At the same time, the company actively expanded non-grid-side customers, focused on the five major and six small power generation companies, and created a second power distribution growth curve. The 24H1 share increased markedly. Overseas electricity investment grew strongly, and distribution exports increased rapidly. From January to August '24, domestic transformer exports were 3.9 billion US dollars, an increase of 26%. The downstream regions with the highest export growth rate and the greatest absolute value contribution were Europe, the Middle East and North Africa. The company's overseas routes are clear, and the power distribution business has made major breakthroughs in Saudi Arabia, Europe and other places with the advantage of using electricity to go overseas.

In-depth rehabilitation medical layout to seize blue ocean opportunities

The growing elderly population, changes in disease spectrum, and increased medical payment capacity continue to drive the release of demand for rehabilitation care. We believe that private rehabilitation medical service institutions can be the backbone of bridging the gap between supply and demand in the industry. The company began to accelerate the expansion of the medical business in '21, and carried out chain replication of rehabilitation specialists through acquisitions and self-construction. As of 1H24, it had 34 affiliated hospitals (28 rehabilitation hospitals). Considering the company's clear rehabilitation chain development plan, we expect the healthcare sector's revenue to exceed 25% CAGR in 24-26.

Risk warning: Investment in power grids falls short of expected risk, overseas smart meter penetration rate falls short of expected risk, industry competition increases risk, raw material price increases risk, medical business falls short of expected risk.