2025-03-17 06:30Dongfang Electric (1072 HK/600875 CH) Conference Call Summary Company Overview - Company: Dongfang Electric (DFE) - Industry: Electrical Equipment Key Points 2024 Financial Performance Expectations - Net Profit: Expected to be RMB3,155 million in 2024, representing an 11% year-over-year decline and 15% below Bloomberg consensus estimates [2][24] - Gross Margin: Anticipated to decrease from 18.8% in 2023 to 17.6% in 2024 [2] - Dividend Policy: DFE plans to increase its cash dividend payout ratio by more than 1 percentage point annually from 2025 to 2027, starting from the 2024 level [2] Thermal Equipment Market Insights - Tender Size: Expected to stabilize at approximately 70GW in 2025, down from 80GW in 2024, with DFE maintaining a market share of around 35% [3] - Revenue Trends: Anticipated steady revenue in the thermal segment for 2025-2026 due to a delivery cycle of 24-36 months [3] - Future Outlook: A significant drop in order bidding volume is expected from 2026 onwards due to the renewal of the five-year plan [3] Margin Recovery and Renewable Division - Gross Margin in Thermal Division: Reported at 16% for the first nine months of 2024, down from 20% in the same period of 2023; a recovery is expected in 2025 due to a 12% year-over-year decline in steel prices [4] - Renewable Division Gains: DFE is expected to realize a disposal gain of RMB500 million from the sale of two wind farms, with plans to dispose of two more wind farm assets in 2025 [4] Valuation and Target Price Adjustments - Target Price: Raised to HKD9.50/RMB15.50 from HKD8.80/RMB14.80, implying a downside of 4% for H-shares and an upside of 3% for A-shares from the latest market close [5][31] - Earnings Estimates: Earnings estimates for 2024 have been cut by 26% to reflect lower gross margin assumptions, with 2025-2026 estimates also revised down by 7-14% [28][29] Financial Metrics Overview - Revenue Projections: - 2024: RMB65,286 million - 2025: RMB74,790 million - 2026: RMB67,153 million [29] - Net Profit Projections: - 2024: RMB3,155 million - 2025: RMB4,400 million - 2026: RMB4,596 million [29] Risks and Considerations - Upside Risks: - Faster order intake in pumped hydro and hydrogen sectors - Improved margins in renewable energy due to lower raw material costs - Enhanced operational efficiency through digital factory deployment [31] - Downside Risks: - Rising raw material costs - Weaker-than-expected margins in the wind segment - Lower order growth in pump storage hydro equipment [31] Market Data - Market Capitalization: Approximately RMB48,401 million (USD6,230 million) [7] - Current Share Prices: - H-shares: HKD9.94 - A-shares: RMB15.10 [7][46] Conclusion - DFE is positioned to face challenges in 2024 with expected declines in net profit and gross margins, but there are potential recovery signs in margins and strategic asset disposals in the renewable sector. The company maintains a hold rating with adjusted target prices reflecting current market conditions and future expectations.