Matters:
On March 7, the State Grid announced the winning candidates recommended for the first batch of procurement in 2024 (the first tender procurement of substation equipment (including cables) for power transmission and transformation projects); of these, Changgao Electric won a total of 260 million yuan in bids.
Commentary:
The bid amount for the transmission and transformation project at the State Grid headquarters reached a record high in a single bid. According to the announcement of the winning candidates for the first batch of procurement recommendations in 2024 issued by the State Grid on March 7, Changgao Power received a total bid amount of 261 million yuan. The average amount of the company won a single bid amount for the 2020-2023 State Grid transmission and transformation project (usually 6 batches per year) was 0.43/0.92/1.42/184 million yuan, respectively. In recent years, the company won a record high in single tenders for power transmission and transformation projects at the State Grid headquarters.
500kv combined electrical products have achieved a major breakthrough. The higher the voltage level of power equipment, the higher the difficulty and profit level of the product. The company's combined electrical appliances were mainly in the 110kv-330kv range in past power transmission and transformation projects. In 2023, the company's 500kv combination appliances won the bid for the first time in the fifth batch of tenders, but the scale was small. Specifically, the winning bid was combined appliances for the Zhejiang First Line Replacement Project, with a total value of only 3.72 million yuan; the company won the bid in 2024 for the new 500kv switching station project in Shiling, Liaoning and the 500kv substation expansion plant in Huguan, a total of 8, The total amount was 53.265 million yuan, a major breakthrough in terms of amount.
The 23-year performance has been significantly restored, and many parties are optimistic about subsequent performance growth. The company's performance forecast is net profit of 140 million to 175 million yuan after deducting non-return to mother in '23, an increase of 229%-312% over the previous year. There has been a significant recovery compared to '22. Looking ahead to 24, on the revenue side, the company's orders grew steadily in 23, and the winning bid amount for the first batch of power transmission and transformation projects reached a record high in 24; on the profit side, 500kv combined electrical appliances are expected to be delivered in batches in 24, and the gross margin level of the company's products is expected to continue to rise year on year; on the impairment side, the impairment problems faced by the company are mainly impairment of goodwill of the subsidiary Hubei Huawang Engineering and impairment of accounts receivable for the Chunhua wind power project. With the calculation in the past few years, the risk of the company's financial impairment may have gradually been cleared.
Investment suggestions: Changgao Electric has been deeply involved in electrical equipment for more than 20 years. The share of isolation switches is stable and high. The competitiveness of other primary and secondary equipment products continues to improve, and market channels are gradually being broadened. Currently, the company's financial impairment risks may have been gradually cleared, and the future growth path is clear. Since there were still minor impairment issues in '23, we lowered our 23-year performance forecast and kept the follow-up forecast unchanged. The company's net profit for 23-25 years was 1.8/3.1/380 million yuan (previous values were 2.6/31/380 million yuan, respectively), and the corresponding EPS was $0.28/0.50/0.61 yuan (previous values were 0.42/0.50/0.61 yuan, respectively), maintained a target price of 9.5 yuan, and maintained a “strong push” rating.
Risk warning: Power grid bidding or construction falls short of expectations; marketing of the company's new products falls short of expectations; rising raw material prices weaken the company's profits.