The company has always focused on electricity metering and related industries. Its operating efficiency is high, and it has maintained a relatively good rate of return in the past; although some customers' bid shares fluctuated in the first half of the year, the company's competitiveness is still there, and it is expected that it will gradually improve in the future. On the industry side, the last round of smart meters has gradually expired and is currently in the upward phase of the replacement cycle. The number of tenders for smart meters from the State Grid and South Grid both increased dramatically in the first half of this year. It is expected that the bidding volume will remain high in the second half of the year, and the company will benefit from this round of domestic smart meter updates and replacements.
At the same time, the company's overseas business and nurturing products also maintained a relatively rapid growth rate, maintaining a highly recommended rating.
The company maintains efficient operations. The company has always focused on the electricity and other meter measurement industry. In the early days, it mainly provided design and other customized services as a tripartite agency. Later, when power grid companies implemented centralized bidding, they began to promote their own brands, maintaining the first tier of market share in the country. The company has strong design capabilities and cost control capabilities, and maintains excellent profitability and return on assets. The company's weighted average return on net assets in the past three years was 12.7%, 16.7%, and 18% respectively, with net cash on hand exceeding 2.1 billion yuan.
Benefit from this round of smart meter updates. The last round of smart meter construction in China popularized digital meters and billing systems, replaced manual meter reading, and greatly improved the operating efficiency of power grid enterprises. This batch of meters has expired, and the industry is currently in the upward phase of the replacement cycle. On the other hand, due to the large-scale construction of domestic real estate and new electricity facilities such as buildings, photovoltaics, and charging stations over the past ten years, the peak in this round should significantly exceed the previous round. At the same time, national standards for electric meters have been raised and power grids have begun to push tiered electricity prices more generally. As a result, the corresponding new-generation smart meter functions are more complicated, the technical difficulty is higher, and the added value is also increasing. In 2024, the State Grid tendered for the first batch of electricity meters. A total of 45.21 million meters and terminal products were tendered, an increase of 81% over the previous year. Moreover, several Internet provincial companies revealed that they will bid for 3 batches of electricity meters this year, and the number of tenders for the whole year may have exceeded expectations. Similarly, in May of this year, China Southern Power Grid tendered more than 4 billion yuan for meter-related products, an increase of more than 120% over the previous year. Electric meters are metering and measurement. They are the core billing device for power grids, and their economic input-output ratio is high; however, the power grid imposes market share limits on major players, so the profit level of electricity meters is relatively stable. In summary, we have analyzed companies related to the domestic meter industry, and the operating certainty next year will also be quite high.
The contribution of new businesses increased. The company's three cultivation businesses include, a) overseas: the company established a subsidiary in Europe earlier, and already has a certain scale of business in European countries such as Germany. The company's overseas revenue in '22 accounted for nearly 20%. In '23, overseas revenue declined due to the progress of some project confirmation, but the company revealed that the order trend was good, and it is still increasing the expansion of markets in Europe, the Middle East, Africa, etc.; b) Water meter: The company has passed the stage of cultivating the water meter business based on its accumulation in the field of measurement, and has now begun to invest in the field of measurement. C) User-side business: The acquisition of Nayu Electric in '16 mainly promotes power and energy metering and management products to industrial and commercial users. The company's operations are relatively stable. In addition, the company has participated in some equity investments and currently holds shares in listed companies such as Sirui New Materials and Jingwei Information.
Investment advice: The company's operating efficiency is high and benefits from the renewal and replacement of domestic smart meters; at the same time, the company's overseas business is expanding at an accelerated pace, and its contribution will continue to increase. Maintain a highly recommended rating.
Risk warning: Grid investment falls short of expectations, overseas and new business falls short of expectations, equity investment losses.