Key points of investment

Under short-term pressure on performance, net profit due to 2024H1 fell 27.86% year on year to 2024H1, and the company achieved operating income of 0.81 billion yuan, a year-on-year decrease of 33.61%; net profit to mother 0.1 billion yuan, a year-on-year decrease of 27.86%; net profit from non-return to mother was 0.098 billion yuan, down 18.12% year on year. With 2024Q2, the company achieved operating income of 0.313 billion yuan, a year-on-year decrease of 51.04% and a year-on-month decrease of 37.03%; net profit to mother was 0.048 billion yuan, up 14.50% year-on-year and 6.10% month-on-month; net profit after deducting non-return to mother was 0.051 billion yuan, an increase of 85.95% year-on-year and 7.21% month-on-month.

Main business revenue declined due to reduced orders and delays in construction

By product, 2024H1, the company's power engineering construction, intelligent electricity service, and power equipment business achieved operating income of 0.556 and 0.193 billion yuan, respectively, a year-on-year decrease of 21.65% and a decrease of 57.34%, respectively. The gross margin was 16.90% and 16.78%, respectively, and the gross margin decreased by 6.74 pct and 2.09 pct year-on-year. Affected by the market environment, the company's orders were reduced compared to the same period last year, and the operating income of power engineering construction, intelligent electricity services, and power equipment businesses all declined.

Stabilize the Jiangsu market and actively expand the market outside the province

Looking at the subregion, with 2024H1, the company's revenue outside of Jiangsu Province was 0.28 billion yuan, a year-on-year decrease of 24.60%, accounting for 34.59% of revenue, an increase of 4.13 pcts over the previous year. The company's design business has spread all over Jiangsu, and is currently continuously expanding its design business across the country. The provinces involved in business outside the province include Anhui, Zhejiang, Inner Mongolia, Hunan, Tianjin, Guangdong, Sichuan, Shaanxi, Jiangxi, Shandong and other provinces. The subsequent company will consolidate the Jiangsu market, continue to accelerate market development outside the province, increase the share of business outside the province, fully explore and utilize regional resources, and design comprehensive energy service solutions according to local conditions.

Deeply involved in the field of power intelligence, the coverage of the Electric Power Cloud Platform has been further expanded. The company has been in the field of power intelligence for 9 years, developed a SCADA system with independent intellectual property rights, and also launched the “Electric Man Cloud Platform”. It introduced next-generation digital technologies such as cloud computing, big data, and the Internet of Things on the basis of traditional power facility operation and maintenance to reduce users' electricity consumption and maintenance costs and improve users' electricity efficiency. The “Electric Man Cloud Platform” is connected to nearly 5,000 substations, 20 channel service providers, and manages an average annual electricity consumption of more than 10 billion degrees; 43 photovoltaic stations, 9 energy storage stations, and more than 400 charging piles. In total, more than 0.1 million power IoT terminals are connected, and the average annual management electricity consumption exceeds 55 GkWh.

Profit forecasting and valuation

The profit forecast was lowered and the “buy” rating was maintained. The company is a leading EPCOS one-stop power service provider, benefiting from the demand brought about by increased investment in power grids, upgrading distribution networks and new energy construction. Considering the pressure on profitability due to intense competition in the equipment business, we lowered our profit forecast for 2024-2026. We expect the company's net profit to be 0.213, 0.279, and 0.333 billion yuan respectively (net profit to mother for 2024-2026 before the reduction was 0.274, 0.315, and 0.354 billion yuan), and the corresponding EPS was 1.03, 1.35, and 1.61 yuan/share, respectively. The corresponding PE is 15, 11, and 10 times, respectively. Maintain a “buy” rating.

Risk warning: Power grid investment falls short of expectations; business expansion outside the province falls short of expectations, and market competition intensifies.