JINPAN SMART TECHNOLOGY(688676)2022 EARNINGS PREVIEW:EARNINGS BEAT WITH ENERGY STORAGE & DIGITAL FACTORIES GATHERING MOMENTUM

2023-03-02 19:10:08 和讯  中信证券LIU Yi/TIAN
  We reiterate Jinpan’s three growth drivers: 1) fundamentals for dry-type transformers trended upward amid the prevailing upscaling of wind turbines, while other products like dry-type transformers and box-type substations for photovoltaics (PV) and ester-immersed transformers for offshore wind farms have also been rolled out; 2) with high-voltage cascaded energy storage systems (ESS) as core products, Jinpan boasts an edge in technology, customer and channel, and its production capacity planning presents notable elasticity, leading us to believe that its high-growth attribute will gradually manifest itself in 2023; 3) digital transformation has shown actual results in cost reduction and efficiency increase at its own factories, which may allow it to gradually provide digital transformation solutions to external parties in 2023 and 2024. In addition to the high prosperity of downstream demand in the industry, the α attribute of Jinpan itself merits greater attention in our view. Considering that its business expansion in energy storage and digital factories may exceed expectations, we raise our 2022E/23E/24E EPS forecast to Rmb0.66/1.19/ 1.88 (vs Rmb0.64/1.01/1.53 previously). We assign 45x 2023E PE to lift our target price to Rmb54 (vs Rmb45 previously) and reiterate the "BUY" rating.
   Earnings growth in 2022 exceeded expectations per preliminary results.
  Jinpan released its preliminary results (unaudited) for 2022 on Feb 27, saying that it achieved revenue/attributable net profit (ANP) of Rmb4,746mn/282mn (+43.69%/+20.38% YoY) in 2022, which leaves 4Q22 revenue/ANP at about Rmb1,558mn/114mn (+53.47%/+70.35% YoY), beating market expectations.
  The net profit margin (NPM) recovered to 7.03% (+1.36ppts QoQ) in 4Q22, continuing the recovery trend. The significant top-line growth is attributable to the steady growth of dry-type transformers for wind power, as well as the rapid growth of box-type substations and special custom dry-type transformers for PV power plants and silicon materials, which verifies the upward trend of Jinpan’s fundamentals. Meanwhile, stabilizing raw material costs and product price adjustments also bode well for the recovery of its profitability. We expect the recovery trend of its profitability to continue in 1H23. With the gradual commissioning of its energy storage and digital factory projects, Jinpan’s earnings growth will likely accelerate on a quarterly basis.
  Energy storage orders grew rapidly with capacity expansion well underway.
  Jinpan launched a series of energy storage products in Jul 2022, with high-voltage cascaded ESS offerings as core products. Meanwhile, it has been building a presence in low-voltage ESS and household energy storage products. Jinpan has secured a total of about Rmb275mn ESS-related orders, especially orders of 200MWh middle- and high-voltage direct-mounted ESS.
  In terms of capacity, its Guilin energy storage plant (with the capacity totaling 1.2GWh) has been put into operation in Jul 2022, and the commissioning of its Wuhan energy storage plant (with the capacity totaling 2.7GWh) will likely follow suit in 1H23 per company guidance. Jinpan's existing products share  common underlying technologies with energy storage products, and it has started cooperation in high-voltage ESS technologies with Shanghai Jiao Tong University (SJTU), which may give it a preemptive advantage in advanced technologies. On the front of customers and sales channels, it also has a wide client base across various energy storage application scenarios, such as power producers, grid operators and industrial & commercial enterprises. Against this backdrop, we expect its order intake for energy storage products to accelerate, creating a second growth curve.
  Effective digital transformation.
  Relying on its own R&D team, Jinpan has completed the construction of digital factories in Haikou, Guilin and Wuhan in recent years, with a keen promotion of digital transformation to achieve lower costs and higher efficiency.
  According to the Company's 2021 annual report, its Haikou factory raised its capacity by more than 100% YoY after digital transformation while requiring a lower number of workers. Jinpan has started to provide integrated digital transformation solutions for external parties based on its own experience, including preliminary consulting and planning services, underlying architectural design, production equipment and relevant software, etc.
  According to company announcements, Jinpan has secured Rmb300mn worth of orders for its digital factories, and its key customer is Eaglerise Electric & Electronic. The first batch of orders was successfully delivered in Oct 2022, and Jinpan expects to deliver the remaining orders in 2023. The continuous growth in order intake from a single customer reflects that Jinpan’s digital factory solutions have received high recognition from customers, and its products have reached a sound level of sophistication. In terms of products, Jinpan focuses on integrated solutions, but it has also launched modular products to meet the needs of specific customers for partial technical transformation and upgrading. Meanwhile, Jinpan is likely to expand to other industries with a discrete production mode (such as pharmaceuticals, medical devices, and tobacco & alcohol). We expect Jinpan's digital factory business to beat market expectations in order intake and customer & vertical expansion in 2023.
  Potential risks:
  Fluctuations in raw material prices; the marketing of its energy storage products missing expectations; disappointing business expansion for its digital factories.
  Investment recommendation:
  We reiterate Jinpan’s three growth drivers: 1) fundamentals for dry-type transformers trended upward amid the prevailing upscaling of wind turbines, while other products like dry-type transformers and box-type substations for PV and ester-immersed transformers for offshore wind farms have also been rolled out; 2) with high-voltage cascaded ESS as core products, Jinpan boasts an edge in technology, customer and channel, and its production capacity planning presents notable elasticity, leading us to believe that its high-growth attribute will gradually manifest itself in 2023; 3) digital transformation has shown actual results in cost reduction and efficiency increase at its own factories, which may allow it to gradually provide digital transformation solutions to external parties in 2023 and 2024. In addition to the high prosperity of downstream demand in the industry, the α attribute of Jinpan itself merits greater attention in our view. Considering that its business expansion in energy storage and digital factories may exceed expectations, we raise our 2022E/23E/24E EPS forecast to Rmb0.66/1.19/1.88 (vs Rmb0.64/1.01/1.53 previously). Factoring in the average valuation of 46x 2023E PE for its comparable peers Clou Electronics (002121.SZ), Sungrow Power Supply (300274.SZ), and Sinexcel Electric (300693.SZ) based on Wind consensus estimates and the high visibility of Jinpan’s earnings growth-we expect Jinpan to deliver an operating revenue/net profit GAGR of 44%/69% in 2022-24, respectively, we assign 45x 2023E PE to lift our target price to Rmb54 (vs Rmb45 previously) and reiterate the "BUY" rating.
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