Xianheng International(SH:605056) Minsheng Securities·2024-03-02 16:00Investment Rating - The report maintains a "Recommended" rating for the company, with projected revenues of 28.13 billion, 31.72 billion, and 35.25 billion for the years 2023 to 2025, respectively, and corresponding net profits of 0.95 billion, 2.63 billion, and 3.16 billion, leading to PE ratios of 58X, 21X, and 17X for the same years [74]. Core Insights - The company has experienced a temporary decline in net profit, with a reported net profit of 0.34 billion for Q1-Q3 2023, a year-on-year decrease of 44.71%. This decline is attributed to initial challenges in understanding new industry applications and a higher proportion of standardized products in the sales structure, which has led to a decrease in gross margin compared to traditional power grids [3]. - The company has established itself as a national MRO (Maintenance, Repair, and Operations) centralized supplier, leveraging its experience in serving state-owned enterprises and expanding into new sectors such as nuclear industry and transportation [4][70]. - The report highlights the increasing digitalization of procurement processes in government and state-owned enterprises, with nearly 30% of central state-owned enterprises reporting a digital procurement penetration rate exceeding 50% for MRO industrial products [16][70]. Summary by Sections Company Overview - The company has been in operation for over 30 years and has a stable ownership structure, with Wang Laixing as the actual controller [49]. - The company has a diverse product offering, with over 60,000 SKUs and a logistics network that includes one main warehouse and ten distribution centers [66]. Financial Performance - The company’s revenue from tool and equipment business grew by 29.92% in H1 2023, with projected growth rates of 36%, 12%, and 12% for the years 2023 to 2025 [40]. - Other business segments also showed significant growth, with a 41.14% increase in revenue in H1 2023, and projected growth rates of 42%, 1%, and 1% for the years 2023 to 2025 [41]. Market Trends - The report notes that the digitalization of procurement is a key trend, with government policies promoting transparency and efficiency in procurement processes [12][13]. - The company is well-positioned to benefit from these trends, as it has a strong track record in government procurement and is expanding its service offerings to meet the needs of various industries [70]. Business Model - The company operates a hybrid business model that combines sales with on-site technical services, enhancing customer engagement and satisfaction [29]. - The report emphasizes the importance of understanding customer needs and providing tailored solutions, which is critical for maintaining competitive advantage in the MRO market [59]. Future Outlook - The company is expected to continue its growth trajectory, with a focus on expanding its market presence and enhancing its service capabilities in new sectors [70]. - The report anticipates stable gross margins due to the consistent profitability of its core customer base, primarily state-owned enterprises [40][71].