Core views

The company released its report for the first quarter of 2024, and the net profit from 2024Q1 reached 58 million yuan, an increase of 207% over the previous year. Demand in overseas markets continues to improve, increasing the scale of revenue and raising the level of gross profit. The company's overall profitability improved. The gross margin of 2024Q1 reached 24.2%, an increase of 7.05pct over the previous year, continuing the high level of 2023Q4. Overseas demand continues to be strong, providing momentum for the company's future growth. The company is deeply involved in overseas markets, deeply binds leading international customers to go overseas, and actively promotes direct product exports and expands product types, so it will fully benefit from industry development opportunities brought about by high global demand.

occurrences

The company released its report for the first quarter of 2024. 2024Q1 achieved operating income of 774 million yuan, an increase of 21.5% year on year, net profit to mother of 58 million yuan, an increase of 207% year on year; net profit after deducting non-return to mother was 52 million yuan, an increase of 207.3% year on year.

Brief review

2024Q1's performance increased by 200%, and the operation got off to a good start

1) Net profit from 2024Q1 reached 58 million yuan, up 206.7% year on year, with impressive performance. Earlier, the first quarter results forecast was announced. The median 2024Q1 performance was 57 million yuan, which is in line with median expectations.

2) The overseas business is expected to contribute a significant increase. In 2023, the company's overseas revenue accounted for about 27%; overseas business contributed to revenue growth and raised gross profit levels.

Improving demand+rising gross profit, jointly driving high growth in the company's performance

1) 2024Q1 orders increased year over year, revenue increased year over year, and demand continued to improve.

2) Increased profitability: 2024Q1's gross profit margin was 24.2%, up 7.05pct year over year, and -0.41pct month-on-month. Profitability improved significantly. It is expected that due to ① digitalization improving production efficiency and promoting cost reduction and efficiency; ② reducing costs due to large-scale effects and improving cost control capabilities; ③ falling material costs due to falling prices of core raw materials; etc.; gross margin of 2024Q1 increased significantly year-on-year, continuing the high level of 2023Q4.

2) Outstanding cash flow performance: Net cash flow from 2024Q1 operating activities was 42 million yuan, an increase of 29 million yuan over the previous year, and +232% year over year, mainly due to an increase in revenue and an increase in loan receipts.

The new energy sector is booming, and the company's new energy business revenue was 2.13 billion yuan in 2023, an increase of 66.6% over the previous year, which is the core increase of the company's business.

2) There are more deductibles, changes in fair value/equity incentive expenses in 2023.

① It is estimated that participating company Anhewei's long-term equity investment depreciated by 50 million yuan; ② fair value changes to compensate Dingshuo Tongbang 0.17 million yuan; ③ increase in equity incentive expenses by 0.2 billion yuan, etc., totaling about 87 million yuan. After recovering the effects of impairment, etc., the corresponding company's net profit for the whole year increased by more than 35% year-on-year; after deducting non-net profit, the growth rate of non-net profit could reach more than 50%.

3) It can be seen from this that the company's new energy business maintained a high growth trend, and after calculating depreciation/expenses, etc., it went into battle lightly.

The sea view is high, and overseas demand continues to be strong

1) Under major trends such as high growth in global new energy installations, and major trends such as power grid upgrading and re-industrialization, overseas demand will continue to improve; we maintain our judgment on the positive demand for overseas equipment in 2024. According to statistics from the General Administration of Customs, the export scale of 2024Q1 transformers continued to grow, with a cumulative export value of 9.33 billion yuan, a year-on-year growth rate of 30.1%, and transformer exports continued their good growth trend.

2) Through research on public data from leading power equipment companies such as Hitachi and Eaton, the company's order growth rate has remained high for a long time, at around 15%/50%, respectively, and determined that the boom will continue for many years.

3) Overseas demand continues to improve, and the company will fully benefit as an export-oriented enterprise. The company has long been deeply involved in overseas markets, and is a scarce target that can be directly exported to Europe and America. The company accounts for a relatively high share of overseas markets in Europe and the US, so it will fully benefit from the positive changes brought about by strong demand in the European and American markets.

Issuing an equity incentive plan to demonstrate confidence in future development

1) Size: On April 30, 2024, the company announced the 2024 Stock Options and Restricted Stock Incentive Plan (draft). The number of stock options to be awarded is 2.7 million shares, accounting for 0.69% of the company's total share capital; the number of restricted shares is 4 million shares, accounting for about 1.02% of the total share capital, accounting for a total of 1.71% of the total share capital.

2) Assessment goal: One of the following conditions must be met 1) Revenue side: The 2024/2025/2026 revenue growth rate is not less than 25%/50%/80%, that is, the corresponding revenue is 45.4/54.5/6.53 billion yuan, and the 2024/2025/2026 revenue growth rate is 25%/20%/20%, respectively. 2) Performance side: Net profit after deducting non-recurring profit and loss in 2023 is the base, and the growth rate of non-net profit deducted in 2024/2025/2026 is not less than 30%/60%/90%, that is, the corresponding amount of deducted non-net profit is not less than 2.6/3.2/380 million yuan.

Performance forecasts

The estimated net profit for 2024 and 2025 will be $35/4.7 billion, PE 22.8/17.0x.