Zhengtai Electric (601877): The Scale of Residential Photovoltaics Continues to Expand
Zhengtai Electric has reported a revenue of 57.251 billion yuan for 2023, reflecting a year-on-year increase of 24.53%. However, the net profit attributable to shareholders was 3.686 billion yuan, down 8.38% compared to the previous year. The net profit excluding extraordinary items was 3.829 billion yuan, an increase of 14.95% year-on-year, primarily due to the reversal of asset impairment provisions. With the backdrop of the “whole county promotion” policy and the decrease in silicon material prices, we believe the company’s distributed business is poised for rapid growth. We forecast the company’s EPS for 2024-2026 to be 2.12/2.56/3.17 yuan respectively.
Using a segment valuation approach, the average PE ratios for comparable companies in low-voltage electrical and photovoltaic sectors are 16.5 and 10.1 for 2024. Considering that the expected growth rates for the company’s low-voltage electrical and photovoltaic businesses are lower than those of the comparable companies, we assign PE multiples of 12.5 and 8 respectively (with EPS of 1.15/0.97). This results in a target price of 22.14 yuan, maintaining an “overweight” rating.
The shift in revenue structure has led to a decline in profitability, but the company has improved cost control. In 2023, the gross profit margin was 21.97%, a decrease of 1.14 percentage points year-on-year, and the net profit margin was 8.64%, down 1.62 percentage points year-on-year. The decline in profitability is primarily due to changes in revenue structure. Revenue from photovoltaic business increased by 8.15% year-on-year to 6.394 billion yuan with a gross margin of 18.43%, down 2.13 percentage points. The share of low-voltage electrical revenue decreased by 7.29% year-on-year to 35.18%, while the gross margin increased by 1.85 percentage points to 28.04%.
In 2023, the expense ratio was 11.58%, down 1.48 percentage points year-on-year, demonstrating significant results in cost reduction and efficiency improvement. In the first quarter of 2024, the net profit attributable to shareholders was 1.081 billion yuan, declining 10.06% year-on-year but increasing 55.49% quarter-on-quarter. The net profit excluding extraordinary items was 1.032 billion yuan, down 4.98% year-on-year but up 21.84% quarter-on-quarter. The gross and net profit margins for Q1 2024 were 22.94% and 8.61%, respectively, with quarter-on-quarter increases of 3.57 and 2.10 percentage points.
The growth in newly installed distributed photovoltaics is promising, and the scale of residential photovoltaic businesses continues to expand. The decline in silicon material prices has reduced the initial installation costs of distributed photovoltaic projects. According to data from the National Energy Administration, 23.8 GW of new distributed photovoltaic installations were added nationwide in Q1 2024, representing a year-on-year increase of 31%. As one of the earliest companies to engage in residential photovoltaics in China, Zhengtai has a strong industry foundation. By the end of Q1 2024, the operating scale of the company’s photovoltaic power stations reached 16.85 GW, up 48% year-on-year, with operational scales of 1.80 GW, 0.49 GW, and 14.56 GW for centralized, commercial, and residential photovoltaic power stations, respectively.
Zhengtai Aneng, a subsidiary, achieved revenue of 29.606 billion yuan in 2023 with a net profit of 2.603 billion yuan. The newly installed capacity for residential photovoltaics exceeded 12 GW, capturing approximately 29% market share, and the sale of power stations amounted to about 8 GW, significantly improving asset turnover efficiency.
In the low-voltage electrical sector, the company optimized its channel layout, resulting in rapid growth in international business. The smart electrical division generated revenue of 21.1 billion yuan in 2023, up 5.9% year-on-year. Zhengtai International reported revenue of 4.469 billion yuan, increasing 16% year-on-year, largely due to ongoing improvements in overseas channels. The company has established more than 30 localized subsidiaries, achieving a localization rate of 65%, with over 40 new distributors added.
According to data from the National Energy Administration, total electricity consumption in the first quarter of 2024 reached 2.3 trillion kWh, a year-on-year increase of 9.8%. We anticipate that the recovery in downstream demand will likely drive stable growth in the company’s low-voltage electrical business.
Risk Warning: Increased industry competition; fluctuations in raw material prices.
