1H24 Results Exceed Market Expectations

The company announced 1H24 results: revenue of 20.2 billion yuan, up 6.3% year on year; net profit to mother of 1.387 billion yuan, up 10.8% year on year. 2Q24's revenue was 13.22 billion yuan, up 89.5% month-on-month, and net profit to mother was 1.054 billion yuan, up 216.9% month-on-month. The company's 1H24 performance exceeded market expectations, mainly due to 1) the company's fan gross margin continued to rebound and continued to reduce losses; 2) the power generation business performed steadily year over year, which was better than expected; 3) in the investment income, in addition to the investment income from the sale of power plants, there was more than 0.8 billion yuan of revenue from disposal of the joint venture company.

The gross margin of 1H24 fans continued the upward trend. 1H24 achieved external fan sales of 5.15 GW, a year-on-year decrease of 10.9%. The gross margin of the 1H24 fan business of the caliber company with warranty funds included in sales expenses was 9.93%, an increase of 6.29ppt over the previous year, and continued to show an upward trend compared to 8.16% of 2H23.

The performance of the power generation business was stable, and the wind power service business returned to normal performance. The company's 1H24 power generation business revenue was 3.51 billion yuan, up 5.2% year on year. At the same time, power plant product sales revenue was 0.93 billion yuan, and the total gross profit margin of the two parts of the business was 56.44%. Considering that the gross margin of the power plant product sales business was low, we estimate that the gross margin of 1H24's power generation business declined only slightly. As of 1H24, the company has accumulated 8.14 GW of grid-connected power plants and is under construction of 3.69 GW, and the performance continues to be strong. 1H24's wind power service business revenue was 2.37 billion yuan, up 2.6% year on year, and gross margin increased sharply by 9.62ppt. The strong performance was mainly due to the relatively high proportion of wind farm construction revenue with low gross margin in the company's service business during the same period last year.

Development trends

There is still room for improvement in the gross margin of fans, and the power plant and service business continues to contribute to performance growth. We expect that in 2024-2025, with the improvement of the company's shipping structure and the reduction in parts procurement costs, there is room for further improvement in the gross margin of the company's fans. Furthermore, we expect the installed capacity of the company's new power plants to reach a new high in 2024, while further promoting continued growth in sales of power plant products. In the wind power service business, the company has actively transformed to backward service, and we believe this business is expected to continue to bring rapid growth.

Profit forecasting and valuation

As the company's 1H24 power generation and investment income performance exceeded expectations, we raised the company's 2024 profit forecast by 9.7% to 2.659 billion yuan. In addition, due to the ongoing pressure on the profitability of the new energy power industry, we lowered the company's profit forecast for 2025 by 10.9% to 3.425 billion yuan. The company's current A shares correspond to a price-earnings ratio of 11.7/9.1 times in 2024/2025, and H shares correspond to a price-earnings ratio of 5.9/4.6 times 2024/2025. We are optimistic about the loss reduction trend in the company's fan business and the strong growth of the power plant and service business, maintaining the company's A share and H share outperforming industry ratings. Due to the increase in profit forecasts, the target price of A shares was raised 9.7% to 10.07 yuan, corresponding to the 2024/2025 price-earnings ratio of 16.0/12.4 times, which has 36.3% upward space compared to the current stock price; due to the increase in profit forecasts and the narrowing of the Hong Kong stock valuation discount after the company's fundamental trends improved, we raised the target price of H shares by 44.4% to HK$5.85, corresponding to 2024/2025 8.5/6.5 times the price-earnings ratio, with 42.3% upside compared to the current stock price.

risks

Increased competition in the industry dragged down the gross profit margin of fan manufacturing; the scale and pace of sales of power plants fell short of expectations.