A veteran of power distribution automation, the market share is stable at the top of the industry. Dongfang Electronics is one of the first manufacturers in the country to enter the field of power distribution automation. It has a complete industrial chain in the field of power distribution. The product system covers all aspects of “transmission, transmission, transformation, distribution and use” of smart grids, forming a complete “source-grid-load-storage” industrial chain layout. The company's market share of distribution terminal products has been at the top of the market for many years, and is a core supplier of the State Grid and the South Grid.

The gross margin of the core business increased steadily, and performance continued to grow. The company's revenue grew from 3.419 billion yuan in 2019 to 6.478 billion yuan in 2023, with a compound annual growth rate of 17%, and net profit to mother increased from 0.247 billion yuan in 2019 to 0.541 billion yuan in 2023, with a compound annual growth rate of 22%. From 2021 to 2023, the gross margin of the core business, the intelligent electricity distribution business, increased steadily, and the overall net margin remained above 9%.

Distribution networks: Accelerate the construction of new power systems, and grid-side investment is expected to accelerate. We believe that with the advancement of new power system construction, distribution grids are gradually changing from power networks that simply accept and distribute electricity to users to power networks that integrate and interact with the source network and are flexibly coupled with higher-level power grids. Their functions in promoting the nearby consumption of distributed power sources and carrying new types of loads are becoming more and more prominent, comprehensively improving the measurable, adjustable and controllable capabilities of distribution networks, and improving the reliability and carrying capacity of distribution networks. Investment demand on the distribution network side is expected to increase, and the focus is on digital intelligence and one-time equipment upgrades. We believe that as one of the first manufacturers in the country to enter the field of power distribution automation, the company has a complete industrial chain in the field of power distribution, which is expected to benefit deeply.

Scheduling: Years of intensive cultivation, continuous product iteration. We believe that as the energy transition accelerates and the construction of new power systems accelerates, the construction of new scheduling systems is expected to accelerate. The company has been deeply involved in the field of scheduling automation for many years, continuous technological innovation, continuous product iteration, and is expected to continue to benefit.

Electricity transmission and transformation: Localization, autonomy and controllability drive performance growth. The company's power transmission and transformation business covers a full range of products, such as intelligent centralized control stations, relay protection, automated systems, online monitoring of primary equipment, monitoring of auxiliary equipment from low voltage to UHV, intelligent inspection, security and fire protection. We believe that the trend of localization, autonomy and control is expected to drive the continuous growth of the company's power transmission and transformation business.

Profit forecasting and investment advice. We estimate that in 2024-2026, the net profit of the company's parent company will be 0.669 billion yuan, 0.83 billion yuan, and 1.017 billion yuan, respectively. The corresponding earnings per share were 0.50 yuan, 0.62 yuan, and 0.76 yuan, respectively. Based on the peer valuation level and the company's market-leading position in the field of power grid automation, the company was given a 2025 PE 20-25X, corresponding to a reasonable price range of 12.40-15.50 yuan. The first coverage gave it an “superior to the market” rating.

Risk warning: grid investment falls short of expectations; power grid construction falls short of expectations; profitability declines due to rising raw material prices and increased market competition; geopolitical risks, etc.