Matters:

The company released its 2024 semi-annual report. 2024H1 achieved revenue of 3.463 billion yuan, +7.86% year over year; net profit to mother of 0.599 billion yuan, +3.02% year over year; gross profit margin of 31.41%, +0.70pct year on year; net profit margin of 17.28%, -0.81 pct year on year. Among them, 2024Q2 achieved revenue of 1.909 billion yuan, -11.04% YoY, +22.83%; net profit to mother 0.381 billion yuan, -0.95% YoY, +74.74% month-on-month; gross profit margin of 32.54%, +4.54pct YoY, +2.53 pct month-on-month; net profit margin 19.94%, +2.03 pct YoY, +5.92pct month-on-month. The performance was in line with expectations.

Commentary:

The smart sector continues to strengthen the domestic market layout and continuously expand overseas market space. 2024H1's intelligent power distribution business achieved revenue of 1.15 billion yuan, +11.7% year-on-year, and a gross profit margin of 38.9%. In the first half of 2024, the company won a total of 0.322/0.322 billion yuan in the State Grid and South Grid tenders respectively. In overseas markets, the company cooperated with Rangel, a leading company in the global metering industry, to focus on expanding its market share in Western Europe and the Asia-Pacific region; based in Central and Eastern Europe through its wholly-owned subsidiary EGM, the winning contract amount in 2024 had already exceeded 0.8 billion yuan; in the Middle East region, the company and ECC, a well-known local company, broadened the dimensions of cooperation in the form of strategic investment, and the cumulative order amount exceeded 1 billion yuan. With simultaneous efforts at home and abroad, there are sufficient orders on hand, and the company's meter business is expected to continue to grow steadily.

New energy power plants are being connected to the grid at an accelerated pace, and the scale of intelligent operation and maintenance continues to expand. (1) Power plant business: Prices in the industrial chain have declined rapidly, and the enthusiasm for downstream power plant construction has increased. 2024H1 has added more than 200MW of grid-connected scale, more than 500MW of new construction projects, and more than 1,200MW of projects currently under construction. In order to consolidate its competitive advantage in the power plant field, the company signed strategic partnerships with CGN Energy, China Power Construction, and China Power Investment Corporation in 2024. In terms of operation and maintenance, by the end of June 2024, the installed capacity of the power plant projects contracted by the company reached 14.65 GW, and the operation and maintenance capacity increased by 50% year-on-year. The customers were mainly central enterprises such as the “Big Five and Six Small” and local new energy state-owned enterprises. (2) TopCon battery: The first phase of the first phase of the company's high-efficiency N-type TopCon photovoltaic cell production base project carried out orderly production on the 6GW production line for half a year, collaborating with the power plant business.

The energy storage business is developing rapidly, and overseas energy storage is being actively deployed. The company seizes the explosive growth opportunities of the energy storage market and has delivered a total of nearly 3.5 GWh of energy storage equipment and system products. Since 2024, the company has continued to accelerate the layout and promotion of energy storage projects, signed a number of energy storage cooperation agreements, successfully approved nearly 1 GWh of shared energy storage projects, and accumulated reserves of more than 6 GWh of energy storage project resources. At the same time, the company is expanding its overseas energy storage business, focusing on the three major overseas markets of Europe, the Middle East, and Southeast Asia. The company and Saudi ECC began construction of an energy storage PACK joint venture plant in Jeddah, Saudi Arabia, and is expected to be put into operation in 2024Q4.

2024H1's operating cash flow improved significantly year over year. 2024H1's net operating cash flow was 0.465 billion yuan, compared to -0.206 billion yuan in the same period last year, a significant year-on-year improvement, reflecting the continued increase in the company's hematopoietic capacity.

Investment advice: The company's intelligent sector actively goes overseas, the new energy business sector collaborates with each other, and the performance continues to grow steadily. We expect the company's net profit to be 1.246/1.501/1.832 billion yuan in 2024-2026, respectively, and the current market value corresponding to PE is 11/9/7 times, respectively. Referring to comparable company estimates, 14x PE was given in 2024, corresponding to a target price of 8.47 yuan, maintaining the “recommended” rating.

Risk warning: terminal demand falls short of expectations, capacity expansion progress falls short of expectations, increased market competition, etc.