Incident: The company released its quarterly report for '24, achieving revenue of 2.81 billion yuan, -15% year on year, net profit of 237 million yuan, +47% year-on-year, after deducting net profit of 226 million yuan without return to mother, +57% year-on-year. In terms of profitability, 24Q1 gross margin was 18.27%, +5.06 pct year on year, 8.44% net interest rate, +3.86 pct year on year, plus 3.86 pct year on year, after deducting non-return net interest rate of 8.05%, and +3.64 pct year on year. Profitability improved markedly, welcomed a good start, and performance exceeded market expectations.
The divestment of the new energy EPC business slightly affected revenue side growth. Q1 The company's revenue was -15% year-on-year. We believe that the main reason is that the company's new energy EPC business still contributed revenue in the same period in '23. With the implementation of the “One Case, Five Rules” assessment rules, it is an important reform direction for central state-owned enterprises in the new era. The 23Q2 company began to gradually divest the high-revenue but low-profit Fengguang Storage EPC and transfer it to the Group for execution, injecting better profitable Harbin Watch to reinforce the electricity meter business. As a result, the 24Q1 revenue side was under pressure, but the profit side increased sharply year over year.
UHV realized the flexibility of performance and softly opened up room for the company's long-term growth. In '23, the State Grid started a total of 4 special direct projects. The company won bids for 6 converter valves and 4 sets of DC control guarantees, and there are plenty of orders in hand. Looking ahead to the year 24, the State Grid expects to start 5 special direct projects. [Mengxi - Beijing-Tianjin-Hebei] and [Gansu - Zhejiang] will use flexible straightening technology, and the addition of “Southern Xinjiang - Sichuan and Chongqing” will also adopt the flexible straightening solution. The three-tier resonance of domestic UHV flexible direct penetration+smooth going out to sea to the Middle East+domestic sea breeze and soft direct delivery three-line resonance will open up space for the company's long-term growth.
The cost side increased investment to develop the market, and in-hand orders increased significantly. Total expenses during the 24Q1 period were 254 million yuan, +12% year-on-year, and sales/management/R&D/finance expenses were 0.66/1.18/0.84/-0.15 million yuan, respectively, +5%/24%/-7%/2% year over year. The cost side increased investment and continued to explore the market; contract debt at the end of 24Q1 was 1.95 billion yuan, +43% from the beginning of the year, a significant increase in on-hand orders. We expect cash flow from operating activities at the end of 24Q1 The net amount was $260 million, +402% year-on-year, and the cash flow was impressive.
Profit forecast and investment rating: We maintained the company's net profit of 11.6/16.8/1.87 billion yuan for 24-26, +16%/44%/12% year-on-year, and PE corresponding to the current price at 23x, 16x, and 14x respectively, maintaining a “buy” rating.
Risk warning: Grid investment falls short of expectations, flexible planning falls short of expectations, company share falls short of expectations, competition intensifies, etc.