Recommended logic: 1) 2024 is expected to be a major year for domestic electricity meter tenders, with 2,401 batches of tenders increasing by 83.8% year-on-year.
The company's bid amount in the 2302 batch increased by 69.8% year on year, and its market share jumped into the top ten levels. Based on the meter delivery cycle of about half a year and the high tendering boom of 24 years, it supports short-term performance growth. 2) The energy Internet expands demand for power modules and chips, and application scenarios are expected to grow multiple times from 600 million nodes. The company has strong pioneering advantages in wireless communication technology such as MuCoFan, and has fully benefited from the improvement of intelligent penetration. 3) Overseas AMI solutions have a broad market space. The company has joined many international industry standards organizations, and overseas is expected to welcome new volume.
Profitability continues to increase, and expense rates are stable. Profit side: In 2023, the company's gross sales margin/net margin was 36.8%/17.5%, respectively, up 6.1/7.8pp; single Q4 gross margin/net margin was 34.1%/11.6%, respectively, up 0.3/3pp year on year. Expense side: The company's 2023 sales/management (excluding R&D) /financial expenses were 8%/5.9%/-1%, respectively, -1.1 pp/+0.5 pp/ -0.8 pp.
Low-voltage electricity use: 2024 is expected to welcome a major year of domestic electricity meter tenders, and the company's meter products will grow by 1 to n.
The company has been linked to the State Grid for many years, and achieved rapid release after successful development of meter products. The CAGR of the company's meter revenue in 2021-2023 was as high as 60.3%. In 2023, the company's electricity meter business achieved revenue of 440 million yuan, a year-on-year increase of 38.6%, and gross margin of 42.6%, an increase of 9.2 pp over the previous year. The company won a bid of 370 million yuan in the second batch of State Grid meters in 2023, an increase of 69.8% over the previous year. Combined with the boom in electricity meter tenders in 2024, the company's meter business is expected to maintain rapid growth.
Field network communication: The intelligent penetration rate of domestic power grids is gradually increasing, and the company has a first-mover advantage. In 2023, the company's wireless network business achieved revenue of 160 million yuan, a year-on-year increase of 9.9%, gross margin of 48.5%, and a year-on-year increase of 1.2pp. The company focuses on the “last mile” field of IoT connectivity to form an end-to-end IoT end-to-end solution, opening up a closed loop of products and core technologies with multiple independent intellectual property rights. Benefiting from distributed new energy grid-connected access on the distribution side and the upgrading and iteration of user-side meter communication modules from HPLC to dual mode, the wireless network business is expected to achieve long-term stable development.
Utilities: The industrialization of ultrasound watches is advancing at an accelerated pace, and overseas space is wider. The company started the R&D of ultrasonic metering products as early as 2016, and completed the research and development of civil/industrial ultrasonic gas measurement modules in 2022/2023. As demand for smart city construction at home and abroad increases, the company is expected to fully benefit.
Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 1.44 billion yuan, 17.1 billion yuan, and 19.01 billion yuan, respectively. The year-on-year growth rate of net profit for the next three years is 34.1%/19.8%/13.9%, respectively. The company is a leading enterprise in smart distribution grids in China. It benefits from a high increase in electricity meter orders in the short term to support performance development. It has fully benefited from the digital transformation and upgrading of domestic power grids in the medium to long term. The company was given 15 times PE in 2024, corresponding to a target price of 19.20 yuan, and the first coverage gave it a “buy” rating.
Risk warning: the risk that the intelligent penetration rate of domestic distribution grids falls short of expectations; the risk that overseas business expansion falls short of expectations; the risk that exchange rate fluctuations affect the company's overseas business revenue; the risk that the competitive landscape increases the risk of affecting the company's profitability; the risk that grid investment falls short of expectations; the risk that the intelligent promotion of domestic utilities falls short of expectations.