STATE GRID INFO &TELECOM(600131)：A LEADING CLOUD-NETWORK INTEGRATION SERVICE PROVIDER

Against the backdrop of acceleration in new power system construction, power grid companies will likely increase their investment in information and telecom services. As a service provider controlled by the State Grid Corporation of China (SGCC), we estimate State Grid Information & Telecommunication (SGIT) will fully benefit from this trend. SGIT possesses cloud-network integration service capabilities to guarantee stable profit margins under the cost-plus pricing model. With increasing demand from downstream customers, the Company is likely to achieve high-quality earnings growth. It also took the lead in creating new growth points such as virtual power plants, smart transmission, cloud-based energy storage network platforms and so on. We forecast the 2022E/23E/24E EPS at Rmb0.67/0.78/0.92, and assign 24x 2023E PE to derive a target price of Rmb18.5. Initiate coverage with a "BUY" rating.
A cloud-network integration service provider controlled by SGCC.
After the reorganization in 2019, SGIT shifted its main business from hydropower to information and communication, providing products and solutions including cloud network infrastructure, cloud platform, cloud application, and cloud network integration services for power generation and grid entities. In addition, SGIT also provides special services for SGCC, including enterprise resource planning (ERP), operation support and portal website and power trading platform. The Company’s major shareholder is State Grid Information & Telecommunication Group, which held 48.85% of SGIT’s shares as of 3Q22, and the actual controller is the State-owned Assets Supervision and Administration Commission (SASAC).
New power system construction boosts the grid information and telecommunication service demand.
In order to address the safety hazard brought by the uncertainty of new energy output on the power grid, it is a necessary to advance the construction of new power system to improve the efficiency and safe interaction between power, grid, load and energy storage, and promote consumption of power generated by new energies. We estimate that the power grid companies will increase the investment in information and telecommunication industries, and SGIT will benefit from this trend and takes significant advantages in digitalization bidding as an information and telecommunication service provider controlled by SGCC.
Outstanding cloud-network integration service capability with full coverage of all links.
SGIT engages in business of cloud applications, cloud platforms, cloud network infrastructure and enterprise operation support services, with capabilities of cloud network integration services in all aspects. It adopts the "cost + reasonable profit" pricing model to ensure stable profit margins.
Among the Company's subsidiaries, China-Power Information Technology provides software services for the cloud platform and cloud application, and builds the power marketing and ERP system for the SGCC. Jiyuan Software is deeply involved in enterprise operation support services, and assists the power grid in building a visual operation system. With internet service provider (ISP) and internet content provider (ICP) licenses, Fibrlink Communications provides communication products and network construction services for the power industry, and participates in emerging businesses including virtual power plants and comprehensive energy services. Aostar Information Technology has long been engaged in the research and development (R&D) of electricity market-oriented trading software, and expands its business along with the advancement of electricity market construction.
Preemptively creating new growth points for further development.
SGIT attaches importance to R&D investment and monetization of R&D achievements, and continues to cover new products connected to the new power system. It develops hydropower and spot trading product series for the power generation side, smart substations and smart transmission products for the power transmission and distribution side, and cloud-based energy storage network platform for the power consumption side. We forecast SGIT’s 2022E/23E/24E information and communication business revenue at Rmb7.45bn/8.39bn/10.03bn, with a CAGR of 17.2% in 2021-24, as the Company benefits from the intensified investment in power grid informatization and incremental earnings contributed by new businesses.
Potential risks: Less-than-expected investment of SGCC in grid digitalization; slower-than-expected new power system construction process; intensified industry competition; loss of core technical talents; disappointing technological innovation.
Investment strategy: We estimate SGIT’s 2022E/23E/24E attributable net profit (ANP) at Rmb808mn/943bn/1,102mn (+19%/+17%/+17% YoY), equivalent to EPS forecasts of Rmb0.67/0.78/0.92, corresponding to 23x/20x/17x PE. Based on the average valuation of 24x 2023E PE (Wind consensus estimates) for comparable information and telecommunication service providers including Ygsoft (002063.SZ), Longshine Technology (300682.SZ), Baosight Software (600845.SH) and Aofei Data (300738.SZ), we assign 24x 2023E PE to derive a target price of Rmb18.5 for the Company and initiate coverage with a "BUY" rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。