1H24 results are in line with our expectations

The company announced results for the first half of the year: 1H24 revenue of 3.463 billion yuan, +7.86% year on year; net profit to mother of 0.599 billion yuan, +3.02% year over year; net profit after deducting non-return to mother 0.566 billion yuan, +2.45% year on year. 2Q24's revenue was 1.91 billion yuan, -11% YoY, +22.8% month-on-month, and net profit to mother 0.38 billion yuan, -1% YoY and +74.7% month-on-month, in line with our expectations.

By sector, 1H24:1) Smart meter revenue 1.15 billion yuan, +11.8%, gross profit margin 38.9%, up 4ppt from FY23 34.9%; 2) Energy storage and energy saving industry revenue 0.74 billion yuan, up 20.07%, gross profit margin of 20.07%, up 4ppt from FY23 16.09%; 3) PV power generation revenue 0.42 billion yuan, -8.65% YoY, mainly due to the sale of some power plants, gross profit margin 66.79%; 4) Power plant sales 0.95 billion yuan, gross profit margin 16.4%, up nearly 5ppt from FY23 11.5%.

Development trends

The gross margin of smart meters continued to rise, and the number of new orders signed in 2024 increased. In 2023, the gross margin of the company's smart meters increased by about 3.1 ppt to 34.9%, and the gross margin of 1H24 meters further increased to 38.9%. On the domestic side, in the first half of 2024, the company's State Grid+South Grid won a total bid of 0.644 billion yuan, compared to +40.6%. On the overseas side, in 4/5/7 2024, the company announced that it won 0.14/0.2/0.566 billion yuan for Poland/Saudi/Polish electricity meter projects, totaling 0.91 billion yuan, which has exceeded the company's overseas market revenue level for electricity meters in 2023.

The profitability of energy storage continues to improve, and overseas energy storage expansion will be increased. In 2023, the company's gross profit margin on energy storage was 16%, an increase of 6 percentage points, and 1H24 was further increased to 20%. In the first half of the year, the company delivered a number of 100 megawatt projects, such as the CGN Jiangsu Rudong 200MW/400MWh shared energy storage power plant project and the Anhui Wuwei 100MW/200mmH shared energy storage project. Since 2024, the company has successfully been approved for nearly 1 GWh shared energy storage project, and has accumulated reserves of more than 6 GWh of energy storage project resources. The company is expanding its overseas energy storage business, focusing on the three major markets of Europe, the Middle East and Southeast Asia. On the one hand, it is going overseas with domestic new energy overseas investors or EPC partners, and on the other hand, it relies on Lin Yang's existing overseas smart grid marketing network and resources. The company expects the energy storage PACK joint venture plant with Saudi Energy Care Company (ECC) to be put into operation in the fourth quarter of 2024.

Profit forecasting and valuation

We maintain our 2024/2025 net profit forecast of 1.206/1.408 billion yuan. We maintain our outperforming industry rating and maintain a target price of 8.92 yuan, corresponding to a price-earnings ratio of 15.2/13 times 2024/2025. There is 40% room to rise compared to the current stock price. The current stock price corresponds to 10.9/9.3 times P/E in 2024/2025.

risks

The energy storage business fell short of expectations, and the battery business was under pressure to profit.