Deeply involved in the power grid industry, the four major military businesses help future development. In 1989, the founder went from being a hardware manufacturer to enter the field of power grid system tools through the introduction of advanced tools from abroad. The company provides comprehensive and integrated products, services and solutions for large group enterprises and government departments. In the first three quarters of 2023, the company's revenue was 1,674 billion yuan, an increase of 36.0%. After entering 2023, the company adopted the power grid+four legions strategy, replicating its accumulated experience in the field of power grids to the nuclear industry, emergency response, transportation, petroleum and petrochemical fields, and introducing experts from various industries to deepen industry understanding and find new growth curves. Net profit for the first three quarters of 2023 was 34 million yuan, down 44.71% year on year. On the one hand, the company did not understand the application scenarios of the new industry in the early stages, and standardized products accounted for a relatively high proportion of the sales structure, which reduced its gross margin level by a certain margin compared to traditional power grids; on the other hand, share payment fees of 33.264 million yuan in 2023 affected the company's profit level.

The MRO industry in China is still in the early stages of development. According to statistics from the National Bureau of Statistics, the scale of 4%-7% of the value added of industrial output in 2017 is the market demand for MRO, and the CAGR of value added of industrial production in 2017 to 2022 was 7.50%. Assuming that the value added of China's industrial production will continue to grow at this rate in the next three years from 2023 to 2025, we expect China's MRO market to exceed 2.5 trillion yuan in 2025. The Chinese government began implementing the Sunshine Procurement Project in 2015, and further announced the launch of Phase 4 of the Gold Tax System (GTS) in 2022. The Sunshine Procurement Policy further promotes online procurement by enterprises, drives the digitalization of the supply chain, and promotes the development of industrial supply chain technology and services.

Similarities and differences between platform-based and professional MRO companies. Professional companies pay more attention to service capabilities, while platform-based companies pay more attention to operational efficiency. Platform-based enterprises can rely on the original management system accumulated in the office supplies industry. However, on the one hand, specialized companies have a large number of people (relative revenue volume), and on the other hand, the overall product sales and delivery process is complicated. Professional companies need to set up a large number of professionals on the delivery side and server side to guarantee the customer experience, while platform companies play a more role in matching upstream and downstream transactions, and their personnel are more streamlined.

An MRO company based on services and products. Generally, MRO companies face downstream customers as suppliers, and in long-term cooperation with the State Grid, Xianheng International has a deep understanding of the industry, is deeply involved in the early planning stages of customer projects, and provides its own suggestions for project construction. At this time, its role in business cooperation changes from a supplier to a solution provider. From 2020 to 2022, the company's independent product revenue accounted for 19.10%/18.23%/21.55%, respectively. The gross margin of independent products is far higher than that of standard products provided by suppliers, and the increase in the share of independent products has greatly increased Xianheng's profitability. At the same time, independent products can effectively solve customer pain points, increase customer stickiness, and build their own industry barriers. Xianheng's proportion of independent products in the State Grid field has basically been improved. As the proportion of independent products in the four major legions increases, the company's profit level will continue to rise.

Infrastructure: In order to cater to the company's strategy of the State Grid and the Four Legions, the company built the Xianheng International Intelligent Manufacturing Center in Hangzhou, laying a solid foundation for independent product demand brought about by the expansion of the industry.

Investment advice: The company continues to be deeply involved in the power grid field, expand horizontally and adopt the “Four Legions” strategy, while taking advantage of Dongfeng's online procurement by central enterprises, and is expected to increase steadily in revenue. In the future, as the company deepens its understanding of new development areas, the increase in the proportion of non-standard products will drive an increase in gross margin. The net profit for 23-25 is estimated to be 0.95/2.63/316 million yuan respectively, corresponding to PE of 58X/21X/17X, maintaining the “recommended” rating.

Risk warning: The increase in online penetration falls short of expectations, the risk of changes in the international situation, and the risk of reducing government procurement expenses.