Core views

The company released its report for the first quarter of 2024. 2024Q1 revenue reached 2,658 billion yuan, up 22.36% year on year; net profit to mother was 363 million yuan, up 66.32% year on year, and the first quarter results maintained relatively rapid growth. The company's revenue growth target for 2024 is 20%, and the business situation in the first quarter was off to a good start. Profitability increased significantly, 2024Q1 gross margin increased by 4.48 pct; cash flow increased significantly, and net cash flow from operating activities increased by 290 million yuan. In the context of the boom in domestic and overseas power grid construction and the high growth rate of new energy installations, demand for power equipment inside and outside the grid and overseas will continue to be strong.

occurrences

The company released its report for the first quarter of 2024. 2024Q1 achieved operating income of 2,658 million yuan, an increase of 22.36% year on year; net profit to mother of 363 million yuan, up 66.32% year on year; net profit after deducting non-return to mother was 341 million yuan, an increase of 86.96% year on year.

Brief review

2024Q1's performance grew rapidly, and the company ushered in a good start

1) 2024Q1's revenue growth rate reached 22.4%, net profit to mother reached 363 million yuan, a year-on-year growth rate of 66%, and Q1 performance achieved rapid growth.

2) Cause analysis: ① It is expected to be mainly due to increased revenue from switches and related products. ② The base for the first quarter is relatively low, and data sensitivity is high; ③ It is expected that some 2023Q4 delayed orders will confirm revenue in 2024Q1.

2024 guidelines are relatively stable, and overseas business demand is strong

1) In 2023, the company added 16.513 billion yuan in contract orders (excluding tax), a year-on-year increase of 36.22%, showing impressive performance. Overseas markets added 4.01 billion new orders, an increase of 34% over the previous year, and domestic and overseas demand continues to be strong.

2) The company set a business target for 2024, achieving revenue of 15 billion yuan, an increase of 20% over the previous year; the target for new contract orders was 20.6 billion yuan (excluding tax), an increase of 25% over the previous year. Therefore, we expect the company to maintain steady growth in 2024.

3) The 2024 business target is relatively stable. We speculate that the company may consider that some orders have a long delivery cycle and complex influencing factors for overseas orders, so the company has given a relatively stable target.

4) In the case of a high base in 2023, the company gave a relatively stable order growth target of 25%, demonstrating the company's confidence in future development.

Significant increase in profitability and significant increase in cash flow

1) Significant increase in profitability: The overall gross margin of the 2024Q1 company reached 30.7%, an increase of 4.48pct over the previous year; this is an increase in high-margin products, scale effects, and improved management capabilities.

2) Outstanding cash flow performance: 2024Q1 net cash flow from operating activities increased by 290 million yuan, mainly due to an increase in cash received from sales of goods and provision of labor services.

Grid construction is booming, and demand within the grid remains strong

1) Grid investment is expected to continue to be strong in 2024, with main grid equipment accounting for an important proportion. From January to January 2024, the cumulative investment amount of the power grid was 76.6 billion yuan, a cumulative year-on-year increase of 14.7%. 2) In the six batch transmission and transformation recruitment project of the State Grid headquarters in 2023, the total procurement amount of power transmission and transformation equipment was about 67.7 billion yuan, an increase of 34.4% over the previous year. Among them, the total procurement amount for modular appliances was about 16.8 billion yuan, an increase of more than 50% over the previous year, and the company ranked among the highest in the bid amount for modular appliances. Grid construction is booming, providing a foundation for steady growth.

Demand is strong in overseas markets, and the future can be expected to be deep-seated

1) High demand in overseas markets. In March 2024, the export scale of primary equipment continued to grow. The cumulative export scale of transformers reached 9.33 billion yuan, a year-on-year growth rate of 30.1%; the cumulative export scale of high-voltage switches was 6.53 billion yuan, a year-on-year growth rate of 33.9%. The export volume of primary equipment continued to grow well in the first quarter of 2024.

2) The company mainly sells switches, transformers, and transformer products overseas. There are five major regions: Latin America, Middle East Europe, Russian-speaking regions, Africa, and Southeast Asia. Among them, business in Latin America is developing relatively fast.

3) Overseas markets are booming: In 2023, China's transformer exports reached 37.3 billion yuan, a year-on-year growth rate of 26.3%, and exports of high-voltage switches reached 23.3 billion yuan, a year-on-year growth rate of 33.7%. Strong overseas demand is due to the increase in overseas demand for new energy and power grid construction. The company has been deeply involved in overseas markets for many years. It has strong brand power and high product strength. While overseas demand is growing, the company's overseas business can be expected in the future.

Performance forecasts

The company's net profit for 2024 and 2025 is estimated at 20.3/2.56 billion yuan, PE 25.1/19.9x.