Incidents:

The company released its 2024 mid-year report. 2024H1 achieved total operating income of 6.166 billion yuan, +16.27% year-on-year; realized net profit to mother of 0.887 billion yuan, +26.64% year-on-year. Among them, in 2024Q2, the company achieved operating income of 3.509 billion yuan, +12.05% year-on-month, and +32.03% month-on-month; realized net profit of 0.524 billion yuan, +8.66% year-on-year and +44.21% month-on-month. The performance was in line with expectations.

Overseas markets continue to expand and profitability increases

With 2024H1, the company achieved overseas revenue of 1.515 billion yuan, +40.04% year on year, accounting for 24.56% of revenue, +4.16pct year on year, and gross margin of 33.82% overseas, +1.52pct year on year. The company insists on investing in overseas markets, and its export business has spread to more than 100 countries and regions. The company will flexibly adjust market entry strategies and product portfolios according to changes in target market demand, and use multi-channel sales and customized services to enhance market competitiveness.

Revenue from coil products increased rapidly, with gross margins of main products increasing by 2024H1. The company's switches/coils/ reactive power compensation/ smart devices achieved revenue of 28.86/1.674/0.697/0.47 billion yuan, +9.78%/-9.10%/+35.25% compared to the same period, with gross margins of 35.22%/33.68%/24.71%/31.62%, compared with 3.7+6/+0.70/+2.65/+1.23pct. The company won the bid of 0.738 billion yuan for the 3rd batch of transmission and transformation equipment of the State Grid in '24, accounting for 4.81% of the total amount. We believe that while balancing in-network business, the company is expected to focus on the new energy and industrial markets in the future, and the off-network market is expected to achieve rapid growth.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 15.213/18.709/22.835 billion yuan, respectively, +22.09%/+22.98%/+22.06%, respectively; net profit to mother will be 2.068/2.576/3.115 billion yuan, respectively, with year-on-year growth rates of 32.63%/24.58%/20.92%, respectively. EPS was 2.67/3.33/4.02 yuan respectively. In view of the expected growth of the company's domestic, external, and overseas markets, the profitability of its main products continues to increase, giving it a “buy” rating.

Risk warning: domestic grid construction falls short of expectations; overseas project risk; exchange rate risk.