Core views

The company released its report for the first quarter of 2024. 2024Q1 performance increased 47.39% year on year, gross margin increased 5.1 pct year on year, and the company's first quarter results had a good start. Looking at the network, the cumulative investment amount for 2024Q1 domestic power grids was 76.6 billion yuan, an increase of 14.7% over the previous year. It is expected that grid investment will continue to accelerate in 2024; UHV construction continues to advance, and it is expected that four DC UHV lines will be tendered in 2024. Looking outside the network, thanks to the rapid development of the new energy and energy storage industry, the company's off-network business increased significantly, and led to the growth of supporting equipment. The company continues to promote international market development, and flexible DC continues to advance overseas, and it is expected that overseas business will continue to increase. Flexible and direct catalytic intensity, and incremental resonance at home and abroad, the company's DC business can be expected in the future.

occurrences

The company released its report for the first quarter of 2024. 2024Q1 achieved operating income of 2,810 billion yuan, a year-on-year decrease of 15.09%, net profit of 237 million yuan, an increase of 47.39% over the previous year; net profit after deducting non-return to mother was 226 million yuan, an increase of 57.09% over the previous year.

Brief review

2024 first-quarter results ushered in a good start

1) Net profit attributable to 2024Q1 and net profit not attributable to mother were 237/226 million yuan respectively, up 47.39%/57.09% year-on-year, due to a significant increase in gross margin and a combination of input tax deductions. 2024Q1's revenue was 2.81 billion yuan, down 15.09% year over year. It is expected to be due to factors such as the gradual divestment of the pure turnkey business and a high base.

2) The company has benefited from the overall upward trend in grid investment. Demand for new energy sources outside the grid continues to improve, etc., demand in the power equipment industry is strong, and the company's performance continues to rise.

Gross margin increased significantly, and cash flow increased significantly

1) The overall gross margin of 2024Q1 reached 18.27%, an increase of 5.1 pct over the previous year. It is expected that due to the company's continued divestment of the pure general package business, stand-alone equipment sales will help improve profitability; it is also due to a combination of reasons such as cost reduction and efficiency, and product structure optimization.

2) Input tax credit: The company enjoyed the advanced manufacturing industry input tax credit in 2024Q1, and other 2024Q1 income categories increased by 28 million yuan.

3) Significant increase in cash flow: net cash flow from operating activities was 260 million yuan, an increase of 401.81% over the previous year; mainly due to strengthened repayment management, customer repayments increased.

Flexible DC catalysts are intensive, and there is incremental resonance at home and abroad. DC business can be expected in the future 1) Domestic: It is clear that many lines will use flexible straightening technology. A total of 4 DC UHV lines are expected to be approved in 2024: North Shaan-Anhui, Shaansu-Henan, Mengxi-Beijing-Tianjin-Hebei, and Gansu-Zhejiang. Mengxi-Beijing-Tianjin-Hebei and Gansu-Zhejiang are expected to use flexible DC technology, and the new Southern Jiang-Sichuan and Chongqing routes are also expected to use flexible straightening. The company will fully benefit from DC UHV construction and the advancement of flexible DC technology.

2) Overseas: UHV/flexible transmission overseas forms an incremental resonance with domestic business. ① At the end of April, the State Grid disclosed procurement information for Saudi Arabia's central south, central and western Rou direct converter station projects. A total of 12 sets of flexible direct converter valves were tendered at the transmission and receiving ends of the Saudi Central South and Central West projects. ② In April, the State Grid signed a franchise agreement for the “Northeast Brazil UHV Project”. The total investment of the project is estimated to be about 26 billion yuan, which can generally target a complete domestic DC line.

3) The cumulative investment amount for power grids from January to January 2024 was 76.6 billion yuan, a cumulative year-on-year increase of 14.7%. It is expected that grid investment will continue to accelerate in 2024.

As one of the core suppliers of UHV converter valves in China, the company maintains the lead in the State Grid UHV market. The growth rate of the secondary power grid business is impressive. In 2023, the State Grid recruitment ranking for protection and monitoring was raised from 7th to 4th; the State Grid ranked first in the bid share for the first batch of electricity meters in 2024. Orders in the South Net market increased significantly year-on-year.

The contribution of off-grid new energy sources is increasing, and overseas markets are expanding steadily

1) The off-network business continued to grow rapidly in 2023, and orders from major customers in the new energy market increased significantly year-on-year. Digging deep into industry opportunities such as coal, data centers, hydrogen energy, etc., we have achieved breakthroughs in the coal and petrochemical industry with integrated optical storage and charging systems, and charging piles.

2) The international market is expanding steadily, and overseas business is growing rapidly. Overseas revenue reached 153 million yuan in 2023, a year-on-year increase of 98.00%; the gross profit margin was 20.02%, up 3.98 pcts year on year. Orders in the international market increased significantly. Projects such as Chile's AMI Phase II, Italy's medium voltage metering, and Saudi intelligent power distribution were signed; breaking through the middle and high-end markets in the Middle East, Europe, and South America; and European standard charging piles entered the Thai and Singapore markets.

Performance forecasts

The company's net profit for 2024/2025 is estimated to be 12.2/1.67 billion yuan, corresponding to PE 23.9/17.4x.