1H24 revenue +16.27% YoY, net profit to mother +26.64% YoY. Performance is in line with our expectations

The company announced 1H24 results: revenue of 6.166 billion yuan, +16.27%, switch/coil/reactive power compensation/smart device/EPC +9.78%/-9.10%/+35.25%/+25.17%, respectively; net profit to mother 0.887 billion yuan, +26.64% year over year; net profit of 0.887 billion yuan, +26.64% year over year; net profit excluding non-return mother of 0.841 billion yuan, +23.48% year over year. Corresponding to 2Q24 operating income of 3.509 billion yuan, +12.05% year over year; net profit to mother 0.524 billion yuan, +8.66% year over year; net profit without return to mother 0.5 billion yuan, +0.26% year over year. The payment fee for 1H24 shares was confirmed at $53.41 million. We estimate that if the payment fee was added back, 1H24 net profit was 0.941 billion yuan, +34% YoY, 2Q24 net profit 0.551 billion yuan, +14% YoY; if we also exclude the impact of profit and loss from changes in fair value of foreign exchange forward contracts, we estimate that 1H24 net profit without return to mother would be 0.905 billion yuan, +38% YoY. The 1H24 results are in line with previous performance reports and our expectations.

Development trends

There are plenty of orders in hand, and the annual revenue target is expected to be achieved steadily. 1H24's total revenue was +16.27% year over year, and the growth rate was slightly below the annual growth target of 20%. We believe that it is mainly due to some of the project delivery pace issues (1H24 year-end contract debt +30.47% to 1.935 billion yuan). Considering the company's abundant orders in progress (additional orders of 16.513 billion yuan without tax in 2023, +36.22% year over year) and the company's order delivery average of about 1 year, revenue growth is expected to gradually accelerate in the second half of the year.

Overseas revenue remains high, and the boom in the industry continues; domestic growth is expected to maintain steady growth. 1H24's overseas revenue was +40.04% year-on-year to 1.515 billion yuan, accounting for 25% of total revenue. According to our observations, overseas medium and high voltage equipment demand continues to be booming, and the revenue growth rate and BB Ratio indicators of major foreign investors continued to perform well in 2Q24. At the same time, on-hand order delivery remained high, and order spillover effects were further highlighted. We are optimistic about the potential of high-quality Chinese companies such as Siyuan to take orders.

1H24 domestic revenue was +10.18% YoY to 4.652 billion yuan. Looking ahead, 1) Network: Siyuan won +58% of the bid amount in the State Grid substation equipment tender in '23, laying a solid foundation for successful completion in 24-25. The cumulative number of tenders for 1-4 batches of combined electrical appliances in '24 was +7%, which remained steady. 2) Off-network:

In January-June, the new installed capacity of photovoltaic/wind power was +51.6%/19.9%, respectively. The company has diversified product solutions in the field of new energy, and demand for booster grid-connected systems, secondary stations, and SVG is expected to increase.

1H24 gross margin/net margin YoY +2.69/1.18ppt. The four major 1H24 products+ engineering packages all achieved a year-on-year improvement in gross margin, with significant increases in switching and reactive power compensation, with a year-on-year increase of +3.77/+2.64ppt; 1H24 domestic/overseas gross margin was 31.07%/33.82%, leading to profit elasticity due to high overseas revenue growth.

We estimate the 1H24 net interest rate +2.04ppt to 15.25% year over year after the share payment fee is added.

Profit forecasting and valuation

We keep our 2024/2025 net profit forecast of 2.06/2.55 billion yuan unchanged, and the current stock price corresponds to 25x/20x 2024/2025e P/E. Maintaining an industry rating and a target price of 76.0 yuan, corresponding to 29x/23x 2024/2025e P/E, there is still 14.6% room to rise from the current stock price.

risks

Grid investment fell short of expectations, raw material prices rose, and overseas business expansion fell short of expectations.