CLOU Electronics: Smart Meter Orders and Breakthrough Performance of Steady Growth


Awarded contract: Bid announcement of State Grid Corporation of China 5th centralized scale tender of energy meter for 2011, including collection terminals: Shenzhen Clou Electronics Co., Ltd.( hereinafter referred to as "CLOU") is the successful bidder for the 1st sub-tender “Class 2.0 single phase smart energy meter”, the 2nd sub-tender “Class 1.0 three phase smart energy meter” and the 8th sub-tender “Special transformer collection terminal” under the 5th lot, in total 13 packages. The total quantity of awarded smart energy meter is 724,294 pieces and special transformer collection terminal is 2,246 pieces. The total amount of the awarded contract is estimated to be 160,854,000 RMB.

The 5th tender of State Grid Corporation of China includes smart energy meter 16,710,000 pieces and special transformer collection terminal 109,699 pieces. CLOU is awarded smart energy meter 724,300 pieces, taking 4.33% and special transformer collection terminal 2,246 pieces, taking 2.05%. The estimated income is 161 million RMB. The income of CLOU first three quarters is 709 million RMB, and the annual income will be around 11,00 million RMB, 15% of which is from the awarded contract. It is estimated that the EPS will increase 0.06 RMB.

The State Grid among the “12th 5-year” plan is expected to have a demand of 230 million pieces of smart energy meters, which in annual average is 46 million pieces.

The accumulated smart energy meter quantity of previous 4 tenders in this year is 58.54 million pieces, and the 5th tender is 16.71 million pieces. In total, the 5 tenders have 75.25 million pieces. CLOU is cautious on the smart energy meter business because of the limited quantity needed in the future.

40% of CLOU products are electricity consumption automation products, and we are optimistic on the industry of distribution and consumption automation products during the power automation development. This industry will be an explosive development in the future. Power automation products business has a stable gross profit margin and the products include electricity consumption automation products, mainly connection terminal, concentrator, frequency convertor, operation power supply. The charging machine and charging pile are the new products of CLOU operation power supply business. After 2 years development, the income of frequency convertor has reached 40 million RMB and the gross profit has increased to a reasonable level. We estimate that the gross profit margin will increase slightly with the future scale expansion.

Investment advice and rating

It is estimated that the EPS in 2011-2012 are 0.37 RMB and 0.49 RMB. The closing price yesterday is 10.07, 27 times and 20 times of corresponding PE. The market share of smart energy meter is not too much, but we are optimistic on the electricity consumption automation business and rate as hold and increase grade.

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