1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 10.28 billion yuan, +8.24% year over year; net profit to mother 0.452 billion yuan, +5.23% year over year; net profit without return to mother of 0.471 billion yuan, +22.87% year over year. Among them, 2Q24 achieved total revenue of 5.6 billion yuan, +19.0% year on year; net profit of 0.249 billion yuan, +3.6% year on year; net profit of non-return to mother 0.281 billion yuan, +34.3% year over year. The 1H24 results were largely in line with our expectations.

Development trends

Power grid investment is booming, the market position within the grid is stable, and UHV products are expected to contribute to flexible performance. 1) Main grid substation equipment: The company won a total of 4.86 billion yuan in the State Grid's 1-4 batch of substation equipment tenders this year (excluding a single source). Among them, transformers/combined appliances achieved orders of 1.49/2.54 billion yuan respectively, +9%/+50% over the same period last year. Among them, the combined electrical appliance share was +2.8ppt to about 18.3% compared to last year, consolidating the network market share. 2) UHV: This year, the company successively won bids for the Qinghai-Tibet expansion and the North Shanhai-Anhui UHVDC project, with a total order of 2.29 billion yuan. We are optimistic that along with the acceleration of UHV construction, the company has strong competitiveness in various core equipment such as transformers, integrated appliances, and converter valves. We expect that the company's UHV high-margin orders last year are expected to confirm revenue one after another starting in the second half of this year, bringing great performance flexibility to the company.

The expansion of new markets has been accelerated off-line and overseas, and the order performance is outstanding. 1) Off-grid: The subsidiary Xikai Electric achieved +58% year-on-year bid in the off-grid market in the first half of the year, achieved the first breakthrough in a complete new energy equipment project, accelerated the development of new product projects, and increased orders in markets such as pumped energy storage and disconnection. The subsidiary Xidian Xibian successfully won the bid for 220kV main transformer equipment for Huaneng's two offshore wind power projects, achieving a breakthrough in ocean wind transformer capacity. 2) Overseas: The company successfully expanded its stand-alone products to Italy, Sweden, Ireland and other countries, and won the bid for Turkey's Akuyu nuclear power plant project to achieve new breakthroughs in the nuclear power field. We are optimistic that the company will further expand its market share in Europe and strengthen the brand's international competitiveness through new orders.

A mid-term dividend was paid for the first time; gross margin increased significantly, continuing to drive cost reduction and efficiency. The company plans to distribute a cash dividend of RMB 0.35 for every 10 shares to all shareholders, totaling RMB 0.179 billion in cash dividends, accounting for 39.66% of the net profit attributable to mother for the period. This is the first interim dividend since the company went public. In terms of profitability, 1H24 achieved a gross profit margin of 19.8%, compared to +2.2ppt. We think it mainly comes from product structure optimization and strong cost control capabilities. Excluding the impact of non-recurring profit and loss, the 2Q24 Company's non-net interest rate was +0.6ppt to 5.0% year-on-year, the highest in a single quarter since 1Q22.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 26.2x/18.4x. Maintaining an industry rating and a target price of 8.48 yuan, corresponding to the 2024/2025 price-earnings ratio of 34.0 times/23.9 times, there is 29.7% upside compared to the current stock price.

risks

Raw material prices fluctuate, grid investment falls short of expectations, geopolitical and trade policy changes.