许继电气(000400.CN)

XJ Electric Aler:Visible FY17growth and multiple drivers on the horizon

时间:17-03-27 00:00    来源:德意志银行

XJ Electric reported in-line FY16results over the weekend and hosted aconference call this afternoon, which reaffirms positive growth outlook thatmay mitigate margin pressure. Stock valuation looks compelling at 14x FY17PE, against a forecasted earnings growth of 33% in 2016-18. Meanwhile, wesee several catalysts incl. 1) strong quarterly results announcement; 2) ordersfrom UHV DC approvals and 3) progress on the pilot incremental distributiongrid projects. Reiterate Buy as our preferred pick in A-share power T&D sector.

FY16core profit +20% yoy, forecasting a stronger FY17(+55%)

In FY16, it delivered 20% yoy higher net profit, in line with our forecast. Astrong 30% top line recovery offsets the weakness in GPM (-4.7ppt), of whichthe market appears well-aware. As a result, we see growth recorded in allsegments at gross profit level, except for smart mid-voltage products whoseGPM dropped to a thin 10% that looks unsustainable. Order intake remainedhealthy in the period, +13% to Rmb13.2bn. For 2017, we are forecasting arobust 55% profit growth, with high visibility on UHV order delivery.

Conference call reaffirms growth trend intact on multiple drivers

Order target: the company’s parentco XJ Group sets an order target this yearat Rmb24.5bn (+13% yoy), which could be viewed as a cross-reading tocompany’s target. In 2016, XJ Electric contributed 61% of total orders and80% of total revenue of XJ Group.

Potential UHV DC orders this year may come from projects (either domestic orcross-border), incl 1) Shaanxi-Wuhan ( ± 800kV), 2) Xinjiang-Pakistan ( ±800kV), 3) Wudongde- Guangxi/Guangdong (±800kV),4) Zhangbei Flexible DC.Smart T&D automation: While mgmt didn’t provide specific guidance onsegment growth, they remain confident in mid-long term outlook, driven by 1)rising urban distribution investment with growing renewable energyconnection, 2) more projects with provincial gridcos under financial-leasingmodels (targeting Rmb1-1.5bn p.a.), 2) upside from incremental distributionprojects which State Grid is now actively involved with.

New energy vehicle charging equipment growth momentum should remainstrong into FY17, after a 63% growth in FY16. This is driven by a planneddoubled investment by State Grid as well as further penetration into the risingnon-grid demand. Now non-Grid customer orders contribute around half.

Smart meters: Although overall industry demand is expected to drop 30% yoythis year, mgmt targets to maintain a flat sales level this year, via furthermarket share gain and more export.

Export sales are expected to rise along with XJ Group’s growing orders -targeting Rmb2.5bn, following a breakthrough (Rmb2bn from Laos) last year.Margin pressure remains but manageable: Although tender prices fordistribution products remain weak on fierce competition, after a pickup in2H16, they are managing to sustain margins by optimizing orders.