Core views

After switching from State Grid procurement to dual mode, the company relied on its excellent chip research and development capabilities to further improve chip integration and reduce costs, and the gross margin of the power grid market increased steadily.

The investment in the power grid will exceed 600 billion in 2024. The digital and intelligent upgrading of the power grid is one of the important investment directions. The company's products such as carrier modules, smart circuit breakers, intelligent measurement switches, and four-device all-in-one machines will directly benefit. In addition, the company is increasing the application and promotion of PLC chips in photovoltaics, smart homes, etc., and the non-electricity market is expected to grow rapidly in 2024.

occurrences

The company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.263 billion yuan, an increase of 4.25% over the same period last year; realized net profit due to mother of 42.2155 million yuan, a year-on-year decrease of 16.58%; and realized net profit deducted from non-mother of 38.3872 million yuan, a year-on-year decrease of 13.96%.

Brief review

1. The power grid and non-electricity markets both grew, with gross margins increasing but cost ratios expanding.

2024H1 achieved operating income of 0.263 billion yuan, an increase of 4.25% over the same period last year; realized net profit to mother of 42.2155 million yuan, a decrease of 16.58% over the previous year. Gross sales margin was 46.13%, up 4.89pct year-on-year. 2024Q2 achieved operating income of 0.134 billion yuan, a year-on-year decrease of 5.79%, and realized net profit to mother of 18.859 million yuan, a year-on-year decrease of 35.58%. By market, the company's smart grid business achieved revenue of 0.246 billion yuan, an increase of 3.08% over the same period last year; other IoT businesses achieved revenue of 16.8262 million yuan, an increase of 25.18% over the same period last year. The company has sufficient orders. As of 2024H1, the current order amount is 0.222 billion yuan (excluding tax) (not including 40.2621 million yuan (excluding tax)) for the Southern Network module, which won the bid in July.

The company's revenue grew while profits declined. Mainly due to cost rate expansion. 2024H1, the company's sales, management, R&D, and financial expenses increased by 1.22, 0.07, 1.48, and 2.22pct, respectively, year-on-year. The increase in sales expenses is mainly due to the company's continuous increase in market expansion efforts, and increases in employee remuneration, share payments and advertising expenses; the increase in R&D expenses is mainly due to the company's continuous increase in R&D investment, and the increase in R&D personnel remuneration and share payments.

2. To help the digital and intelligent upgrading of power grids, the PLC module business is expected to grow steadily.

In July 2024, the State Grid further proposed that in order to speed up the construction of a new power system, promote high-quality development of new energy sources, and promote large-scale equipment upgrading, the annual grid investment will exceed 600 billion yuan for the first time, an increase of 71.1 billion yuan over the previous year. The new investment is mainly used for the construction of UHV AC/DC projects, strengthening the connection between county power grids and large power grids, and the digital and intelligent upgrading of power grids.

The application of the company's chips in the smart grid electricity information collection market is the market segment that has contributed the most to the company's current performance and continues to grow. The company continues to participate in tenders for the State Grid high-speed dual-mode module and the Southern Grid high-speed PLC module in the electricity information collection market, and actively explores and deepens the application market. Through leading chip development capabilities and stable and reliable product and service capabilities, the company has achieved a steady increase in market share, further consolidating its position as the main chip supplier for smart grids. In addition to chips, the company is actively developing new products for use in the low voltage distribution network market, and has been successfully applied in new devices such as photovoltaic switches, intelligent circuit breakers, intelligent measurement switches, four-device all-in-one machines, repeaters, IoT meter modules (used to control photovoltaic switches), energy managers, fusion terminals, and transformers. The company's concentrator terminal products continued to win bids in the State Grid 2024 unified procurement tender and continued to grow.

3. Photovoltaics and smart homes are expected to drive rapid growth in the non-electric market.

The company independently developed a PLC power line communication photovoltaic module quick shutdown chip and module that complies with the North American SUNSPEC protocol standards. The chip became the first domestic chip certified by the international CSA testing and certification agency, and complies with the PV module-level fast shutdown SunSpec communication specification test certification certificate. At the same time, a high-speed PLC with an embedded 32-bit MCU launched by the company for distributed photovoltaic acquisition and shutdown applications has already been sold on a large scale. In the field of smart homes, the company's products have been used in smart lighting, smart appliances, whole house intelligence, gateways, etc. The company began to lay out the smart hotel market in 2023. In addition to introducing PLBUS PLC chips, modules and solutions to downstream hotel solution providers, it also established a wholly-owned subsidiary of Jiashi Intelligent Technology, which focuses on system integration based on Lihewei's PLC partner products to provide complete PLC-based hotel customer control system solutions for hotel customers, hotel customer control service providers, and channel providers. As of 2024H1, the company has accumulated hundreds of hotel projects. Currently, it has served more than 200 hotels (including model rooms), and has successfully entered luxury chain hotels and large-scale business hotel chains including All Seasons, Yado, Hilton, Smart Holiday, and Greentree Inn.

4. Profit prediction and investment advice.

After switching from State Grid procurement to dual mode, the company relied on its excellent chip research and development capabilities to further improve chip integration and reduce costs, and the gross margin of the power grid market increased steadily. The investment in the power grid will exceed 600 billion in 2024. The digital and intelligent upgrading of the power grid is one of the important investment directions. The company's products such as carrier modules, smart circuit breakers, intelligent measurement switches, and four-device all-in-one machines will directly benefit. In addition, the company is increasing the application and promotion of PLC chips in photovoltaics, smart homes, etc., and the non-electricity market is expected to grow rapidly in 2024. As of 2024H1, the current order amount was 0.222 billion yuan (excluding tax), laying the foundation for subsequent performance growth. We expect the company's net profit to be 0.124/0.155/0.19 billion yuan in 2024-2026, corresponding to PE19X, 15X, and 13X, maintaining a “buy” rating.

5. Risk warning.

The scale and progress of grid carrier chip investment fell short of expectations. The company's downstream customers are mainly the State Grid and the South Grid, which are greatly affected by the tendering pace of the State Grid and the South Grid.

The State Grid dual-mode tender was launched. Subsequently, the number of manufacturers that passed the dual-mode certification increased, and competition in the industry intensified. Furthermore, channel concessions, product structure changes, etc. will also affect gross profit margins. Expense control falls short of expectations, affecting the company's net interest rate, etc. In markets such as photovoltaics, charging piles, and smart homes, early R&D investment is high. If the market expansion falls short of expectations, it may affect net interest rates. Power carrier communication technology is not unique in markets such as smart homes and smart hotels; there is also competition among different technology routes such as Bluetooth, WiFi, LoRa, and whole-house optical networks.