Incident: The company achieved operating income of 2.05 billion yuan, an increase of 30.4% year on year; achieved net profit of 0.18 billion yuan, an increase of 95.4% year on year; net profit after deducting non-return to mother of 0.16 billion yuan, an increase of 92.9% year on year.
In the second quarter of 2024, the company achieved revenue of 1.28 billion yuan, up 36.9% year on year; realized net profit of 0.12 billion yuan, up 65.6% year on year; net profit after deducting non-return to mother was 0.11 billion yuan, up 64% year on year.
Profitability increased rapidly, and management expense rates increased slightly. Profit side: 2024H1's gross margin/net margin of sales was 24.6%/8.9%, respectively, +5.1pp/+3.1pp; 24Q2 gross margin/net margin was 24.8%/9.4%, respectively, +3.8pp/+1.8pp, respectively, mainly due to the increase in the share of high gross profit such as transformers and the share of overseas revenue. Expense side: The company's 2024H1 sales/management (excluding R&D) /finance expense ratios were 2.3%/6.5%/0.4%, respectively, compared with +0.02pp/+1.3pp/+0.3pp, respectively. Among them, the increase in management expenses was mainly due to the expansion of the scale of operation during the reporting period, and the increase in management remuneration and project service fees.
The gross margin of the energy business increased dramatically, and the lighting business was repaired. With 2024H1, the company's energy products achieved revenue of 1.48 billion yuan, a year-on-year increase of 28.4%, gross margin of 24%, and a year-on-year increase of 6.2 pp. It benefited from the start-up capacity of major downstream customers, Sunshine Power, and the increase in the direct export scale of the company's transformers. The share of high-margin products increased and optimized the product structure, leading to an increase in profits. 2024H1, the company's lighting business achieved revenue of 0.45 billion yuan, an increase of 34.8% year-on-year, mainly due to the low 23H1 revenue base and restoration of lighting demand. The gross margin was 25.9%, an increase of 0.9 pp over the previous year.
Overseas business continues to expand, and transformers are sustainable when going overseas. 2024H1, the company's overseas revenue was 0.6 billion yuan, up 47.9% year on year, gross margin was 32.8%, up 3.9 pp year on year. The company's direct export business includes landscape lighting, industrial control transformers, step-up transformers, and distribution transformers. There is an imbalance between supply and demand for transformers in Europe and the US, and demand for transformers is expected to fully spill over to domestic enterprises with production capacity and product advantages. The company actively lays out overseas factories such as Dallas and Mexico in the US. With the gradual release of production capacity, overseas business development is expected to rise to the next level, and the continuous expansion of the domestic factory in Anhui and the new Ji'an base also supports the company's steady development in the medium to long term.
Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 4.88 billion yuan, 6.29 billion yuan, and 7.79 billion yuan, respectively, and net profit growth rates for the next three years will be 94.3%/37.1%/26.9%, respectively. The company's product structure continues to be optimized, and the proportion of high-margin transformer products has increased. The overseas transformer market space is broad, and the company's pace of going overseas has accelerated. The company was given 20 times PE in 2024, corresponding to a target price of 20.8 yuan, maintaining a “buy” rating.
Risk warning: risk of rising raw material prices; risk of production capacity expansion falling short of expectations; risk of intense competition for overseas transformers; risk of exchange rate fluctuations affecting the company's overseas business.