24H1 deducted non-net profit +13.28% YoY, gross margin +1.6pct YoY. (1) The 24Q2 company's revenue was 1.611 billion yuan, +0.94% year over month, +23.5% month on month; net profit to mother was 0.128 billion yuan, 23.02% year on year, +35.06% month on month, net profit margin 7.87%, +1.37 pct year on year, +0.71 pct month on month. (2) 24H1's revenue was 2.916 billion yuan, +0.79% YoY, net profit to mother 0.222 billion yuan, +16.43% YoY, after deducting non-net profit of 0.212 billion yuan, +13.28% YoY. The year-on-year increase after deducting non-net profit is mainly due to: 1) an increase in the ratio of high-quality customers and orders; 2) a decrease in credit impairment losses and asset impairment losses compared to the same period of the previous year due to improved accounts receivable and inventory management; 3) additional input tax amounts. 24H1's gross profit margin was 23.36%, +1.6pct year on year; net profit margin was 7.55%, +0.95pct year on year; period expense ratio was 15.33%, +2.74pct year on year.

Overseas revenue orders are growing strongly, deepening digital transformation. (1) 24H1's export revenue was 0.79 billion yuan, +48.53% year over year, accounting for 27.3%, or +8.8 pct year on year. Domestic sales revenue was 2.11 billion yuan, -10.02% year-on-year, mainly due to domestic new energy sales revenue of -19.29% year-on-year. However, critical infrastructure sales revenue was +104.69% YoY, power generation and power supply sales revenue +67.41% YoY, and new infrastructure sales revenue +83.38% YoY. (2) As of the end of June 2024, the company's on-hand orders were 6.56 billion yuan (excluding tax), +29.88% year over year, including export sales of 2.849 billion yuan, up 180.16% year on year, and domestic sales of 3.713 billion yuan, or -7.98% year on year. The company is ready to expand production capacity for all products in Mexico and the US, and has completed the layout of the Polish factory and European sales and after-sales service headquarters to prepare for further expansion of overseas markets.

(3) 24H1's transmission and distribution equipment/energy storage series/intelligent production line/installation engineering/photovoltaic power plant business were 24.5/2.8/0.07/0.067/0.03 billion yuan respectively, accounting for 83.9%/9.8%/2.5%/2.3%/1% respectively.

In the first half of 2024, the total order amount for the company's overall digital solution business reached 0.476 billion yuan (excluding tax), further improving the company's core competitiveness in the digital field.

24H1 net operating cash flow improved year over year. As of 24H1, the company's inventory was 1.85 billion yuan, -1.8%; notes receivable were 0.3 billion yuan, -24.4%; accounts receivable were 2.83 billion yuan, +31.2% year over year; notes payable were 0.42 billion yuan, -49.7% year over year; accounts payable were 1.59 billion yuan, -7.8% year over year. The company's 24H1 net operating cash flow was -0.08 billion yuan, +0.22 billion yuan compared to the same period of the previous year, +74.2%; net investment cash flow -0.29 billion yuan, compared to the same period of the previous year -0.51 billion yuan; net financing cash flow was 0.3 billion yuan, +0.28 billion yuan compared to the same period last year. The main reasons for the significant improvement in net operating cash flow compared to the same period last year are:

1) Due to the continuous increase in the proportion of high-quality customers and high-quality orders; 2) Increased payment collection efforts.

Profit forecasting and valuation. It is estimated that in 2024-2025, the company's net profit to mother will be 0.666 billion yuan and 0.916 billion yuan, respectively, corresponding EPS of 1.46 and 2.00 yuan/share. Considering the company's leading position in the field of dry-type transformers and the development potential of overseas business, refer to comparable company valuations and give the company a 2024 25-30X PE with a reasonable value range of 36.5-43.8 yuan, giving it a “superior to the market” rating.

Risk warning. The risk of policy changes, the risk of raw material price increases, and competition exacerbates the risk.