Incident: In the first half of 2024, the company achieved revenue of 3.463 billion yuan, up 7.86% year on year; net profit to mother of 0.599 billion yuan, up 3.02% year on year; net income after deducting non-return to mother of 0.566 billion yuan, up 2.45% year on year; basic EPS was 0.29 yuan/share, which was the same year on year.

Comment: Gross margin increased month-on-month, and operating cash flow reached a record high. In 24Q2, the company achieved a 1.909 billion year-on-year decrease in revenue of 11.04%, a year-on-month increase of 22.83%, gross margin increased 4.54 and 2.53 pcts to 32.54%, respectively, and gross profit increased by 3.34% and 33.20% to 0.621 billion, respectively. In terms of expenses, all expenses in 24Q2 fell month-on-month, sales and management expenses decreased year-on-year, and R&D and finance expenses increased year-on-year. The cost rate for the period was 9.31%, down 4.35 pcts month-on-month, and increased 2.41 pcts year-on-year. The main reason was that 23Q2 had more exchange earnings. In fact, 24Q2 was the quarter with the lowest cost rate for the period other than 23Q2 in the past ten years, and the company's expense control results were remarkable. Furthermore, the company's net cash flow from 24Q2 operating activities reached 0.788 billion, a record high in a single quarter.

Revenue in the smart sector is growing at a moderate rate. The 24H1 segment achieved revenue of 1.15 billion yuan, an increase of 11.75% over the previous year, accounting for 33.19% of the company's total revenue, an increase of 1 pct over the previous year, and a gross margin of 38.90%, which was 7.49 pcts higher than the company's overall gross margin. The company 24H1 won the bid of 0.225 billion yuan for the smart meter and 96.98 million yuan for the electricity information collection terminal in the State Grid 2024 tender and 96.98 million yuan for the electricity information collection terminal, with a total bid amount of about 0.322 billion yuan; in the Southern Grid 2024 measurement product framework tender project, the smart meter won the bid of 0.163 billion yuan, the measurement automation terminal won the bid of 67.42 million yuan, and the communication module won 92.29 million yuan, in total The bid amount was approximately 0.322 billion yuan. Furthermore, as one of the largest domestic smart meter exporters, the company's overseas revenue increased 8.59% year on year to 0.429 billion yuan, accounting for 12.37% of total revenue, up 0.04 pct year on year.

The gross margin of the energy storage sector reached 20%. The 24H1 segment achieved revenue of 0.74 billion yuan, a year-on-year decrease of 24.96%, accounting for 21.38% of the company's total revenue, and a gross margin of 20.07%, an increase of 4 pcts over the full year of 2023. The company's Anhui Wuhe Scenery and Solar Storage Integrated Base Energy Storage Phase II project was successfully connected to the grid. In terms of external system delivery, the company achieved the supply of multiple 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. The total energy storage system delivered nearly 3.5 GWh. This year, it has been approved for nearly 1 GWH shared energy storage project, with various storage projects exceeding 6 GWh. In terms of new energy, 24H1 photovoltaic power generation achieved revenue of 0.42 billion, a year-on-year decrease of 8.65%, and a gross profit margin of 66.79%. In addition, power plant sales achieved revenue of 0.95 billion, a gross profit margin of 16.38%, and various businesses progressed steadily.

Profit forecast: In 2024-2026, the company's revenue is expected to be 9.2/11.7/13.9 billion yuan, net profit to mother of 1.198/1.385/1.584 billion yuan, EPS 0.58/0.67/0.77 yuan, corresponding to PE 10.85/9.38/8.21 times, maintaining a “buy” rating.

Risk warning: Various business developments fall short of expectations, and profit forecasts and valuation models fall short of expectations.