Description of the event

The company released its report for the first quarter of 2024. 24Q1 achieved operating income of 2,658 billion yuan, a year-on-year increase of 22.36%, net profit to mother of 363 million yuan, an increase of 66.32% year-on-year, after deducting non-net profit of 341 million yuan, an increase of 86.96% over the previous forecast range.

Incident comments

According to the company's quarterly report, the year-on-year increase in the company's revenue was mainly due to an increase in revenue from switches and related products; 24Q1 gross margin reached 30.7%, an increase of 4.48 pcts over the same period last year, which is expected to be mainly due to relatively low gross margin in the same period last year, some repairs have been made since 23Q2, and there are also major project deliveries. The gross margin is relatively high, driving the overall gross margin increase.

In terms of cost ratio, the company's 24Q1 three rate (excluding financial expenses) reached 16.04%, up 1.14pct year on year. Among them, the sales rate reached 5.03%, a year-on-year decrease of 0.09pct, the management rate reached 2.98%, an increase of 0.38pct, and the R&D rate reached 8.03%, an increase of 0.51 pct year-on-year. In terms of cash flow, the company's 24Q1 net operating cash flow was -110 million yuan, an increase of 72.63% over the previous year, a significant improvement.

At the industry level, grid investment remained strong in the first quarter. From January to January 2024, the total investment amount for power grid construction was 76.6 billion yuan, an increase of 14.7% over the previous year. Power investment grew steadily. From January to January 2024, the total investment amount for power infrastructure was 136.5 billion yuan, an increase of 7.7% over the previous year. Siyuan Electric products deeply cover the needs of power grids and power side transmission and distribution equipment, and benefit from the overall drive of the industry.

At the company level, by expanding categories, expanding markets, and across industries, the company continues to gain a new growth curve. In terms of categories and industries, the company attaches great importance to product development and technological innovation, continuously enriches the existing product line, and actively explores new business opportunities such as flexible DC transmission, energy storage, static synchronous cameras, automotive electronics, medium voltage switches, bushings, intelligent operation and maintenance, and low voltage switches. On the market side, the company hopes to further increase the market share of the power grid market, enhance the power generation market influence, and enhance the supply capacity of comprehensive solutions for industry customers. In addition, the company will further strengthen the construction of bases in key overseas markets; actively explore high-end markets; and further enhance EPC's comprehensive capabilities.

In 2024, power grid bidding and exports are expected to remain at a high level, and the company's firm strategic execution ensures that the annual target is achieved. We expect the company to have net profit of 2 billion yuan in 24 years, corresponding to 25 times the valuation. Maintain a “buy” rating.

Risk warning

1. Domestic grid investment falls short of expectations;

2. Overseas market expansion falls short of expectations;

3. The pace of promotion of new products falls short of expectations.