Incident: The company released its 2024 quarterly report, and the results were in line with expectations.

1) 2024Q1 achieved revenue of 902 million yuan, +13.66% YoY, -32.09%; realized net profit to mother of 214 million yuan, +21.52% YoY and -31.84% month-on-month; realized deducted non-net profit of 215 million yuan, +31.78% YoY and -31.85% month-on-month;

2) Gross profit margin 44.25%, +5.61 pct year on year, -1.48 pct month on month; net profit margin 23.69%, +1.53 pct year on year, +0.06 pct month on month;

System solutions are in high demand, and profit levels are expected to remain high.

The overall gross margin of the 2024Q1 company remains at a high level, and the gross margin of the smart electricity business is expected to be around 46%. In 2023, revenue from systems and solutions accounted for about 60% of the total revenue of the overseas smart electricity business. Currently, demand for system solutions has increased markedly in many countries such as Africa and Asia.

As a leading provider of system solutions, the company's share of revenue from system solutions is expected to increase, and the gross margin of the overseas smart electricity business is expected to remain high.

The smart electricity business is expected to resonate domestically and overseas.

1) Domestic: The company won 387 million bids in the second batch of the State Grid in 2023, +16.46%; the second batch of South Grid won 165 million bids in 23, +121.80% compared to the same period; the State Grid won 302 million bids in the first batch in 2024, +21.56% year over year. The domestic smart electricity business is expected to achieve positive growth.

2) Overseas: Continue to promote supply chain globalization strategies and overseas localization management strategies, and launch factory layout plans in Europe and Latin America. At that time, the number of overseas bases will reach more than 8; against the backdrop of demand for smart meter upgrades in overseas developed countries and the continuous increase in penetration rates in emerging markets in Asia, Africa, and Latin America, the overseas smart electricity business is expected to continue to grow at a high rate.

Investment advice: As the electricity distribution business benefits from the growth in domestic and overseas demand and the rapid development of the new energy business, the company's performance is expected to grow rapidly. We expect that in 2024-2026, the company's revenue will be 5.268 billion yuan, 6.391 billion yuan, and 7.409 billion yuan respectively, with year-on-year growth rates of 25.41%, 21.31%, and 15.93% respectively; net profit to mother will be 1,190 billion yuan, 1,406 billion yuan, and 1.01 billion yuan, respectively, with year-on-year growth rates of 21.11%, 18.15%, and 13.85% respectively; EPS will be 2.43/2.88/3.28 yuan, respectively. “Buy” rating.

Risk warning: Power grid investment falls short of expectations, overseas market expansion falls short of expectations, industry competition intensifies, raw material prices fluctuate greatly, etc.