Key points of investment

Incident: The company announced its 2024 semi-annual results. 24H1 achieved operating income of 0.81 billion yuan, a year-on-year decrease of 33.61%; realized net profit of 0.1 billion yuan, a year-on-year decrease of 27.86%; net profit after deducting non-return to mother was 0.098 billion yuan, a year-on-year decrease of 18.12%. Looking at Q2 alone, the company achieved operating income of 0.313 billion yuan, down 51.04% year on year and 37.03% month on month; net profit to mother was 0.048 billion yuan, up 14.50% year on year, down 6.10% month on month; net profit without return to mother was 0.051 billion yuan, up 85.95% year on year, up 7.21% month on month.

The decrease in orders over the same period and the delay in construction periods put pressure on the revenue side, and business outside the province continued to expand. By business, power engineering construction, intelligent electricity services, and power equipment supply achieved revenue of 0.556/0.193 billion yuan, respectively, of -21.65% and -57.34%. Gross margins were 16.9%, 16.78%, and -6.74% and -2.09%, respectively. Gross margin continued to be under pressure. Affected by the market environment, the company's orders decreased compared to the same period last year and the construction period was delayed, resulting in a decline in revenue from the two businesses. 24H1 achieved revenue of 0.53 billion yuan and 0.28 billion yuan respectively, with gross margins of 22.03% and 13.66%, respectively, and gross margins of 22.03% and 13.66%, respectively, and -2.21% and -5.92% year-on-year. The share of business outside the province further increased by 4.1 pct to 34.6%. Due to the low gross margin of business outside the province, the share increase lowered the overall gross margin level. In the first half of the year, the company's comprehensive gross profit margin was 19.13%, a year-on-year decrease of 3.69 pct.

The cost ratio increased during the period, and the net cash flow from operating activities was corrected. The 24H1 company's cost rate for the period was 14.35%, +4.91 pct, and the sales/management/finance/R&D expenses rates were 3.23%, 5.85%, -0.17%, and 5.45%, respectively, and +1.42pct, +1.16pct, -0.17pct, and +2.52 pct year-on-year. The company increased its collection efforts during the reporting period, achieving a net cash flow of 0.141 billion yuan from operating activities, an increase of 166.9% over the previous year.

The company has been deeply involved in the industry for many years, continuously promoting the EPCOS+ photovoltaic+energy storage layout, and actively expanding the virtual power plant business.

As of 24H1, the company's “Electric Man Cloud Platform” was connected to nearly 5,000 substations, with 20 access channel service providers, and managed an average annual electricity consumption of more than 10 billion degrees; 43 photovoltaic stations, 9 energy storage stations, more than 400 charging piles, and more than 0.1 million connected IoT terminals. The average annual management electricity consumption exceeded 55 GkWh, and the “O” side continued to grow. 24H1, the company made new breakthroughs in the development and application of microgrid technology, and achieved unified management and collaboration on key aspects of the microgrid, such as source networks, loading, storage, and charging.

Investment advice and valuation: According to the company's 24H1 performance, we adjusted the profit forecast for 2024-2026. The company is expected to achieve sales revenue of 2.799/3.454/4.07 billion yuan in 2024-2026, respectively, +3.9%, +23.4%, and +17.9% compared to the same period last year. Net profit attributable to mother was 0.213/0.284/0.342 billion yuan, +171.6%/+33.3%/+20.3% YoY. Maintain an “overweight” investment rating.

Risk warning: the risk of macroeconomic fluctuations, the risk of rising raw material costs, the risk of recovering accounts receivable, the risk of increased industry competition, and the risk of new construction projects falling short of expectations.