Key points of investment

Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 1.324 billion yuan, +1.6% year over year; net profit attributable to the parent company was 0.205 billion yuan, +5.3% year over year. Looking at Q2 alone, 2024Q2 achieved operating income of 0.748 billion yuan, -1.0% YoY; realized net profit to mother of 0.115 billion yuan, +2.2% YoY; performance was in line with market expectations.

Distributed photovoltaics grew steadily, achieving revenue of 0.563 billion yuan, a year-on-year increase of 12.7%: In the first half of 2024, the company continued to focus on the basic market of industrial energy saving and building energy saving, and promoted adjustments and withdrawals from non-advantageous production capacity areas such as biomass. The company's industrial energy saving achieved revenue of 0.69 billion yuan, +14.0% year over year, of which distributed photovoltaic energy saving business achieved 0.563 billion yuan, +12.7% year over year. Building energy efficiency achieved 0.411 billion yuan, -1.5% year over year; comprehensive resource utilization was 0.154 billion yuan, -21.6% year over year, including 0.094 billion yuan for agricultural and solar complementary business, 0.021 billion yuan for decentralized wind power, and 0.039 billion yuan for integrated biomass business.

In 2024, the company will vigorously expand decentralized wind power and explore the viability of household photovoltaic business: the scale of distributed photovoltaic energy saving projects to be carried out by 2024H1 is 0.3975 million kilowatts, the installed capacity is 2.1 million kilowatts; the wind power project in operation is 0.08 million kilowatts; 0.1847 million kilowatts of agricultural and solar complementary projects and 0.346 million kilowatts of solar complementary projects in Yunnong.

In terms of gross margin, 2024H1 achieved a gross profit margin of 32.7%, year-on-year - 2.0pct: By business segment, the 2024H1 industrial energy efficiency sector achieved a gross profit margin of 46.7%, -5.3pct year on year, of which distributed photovoltaic business achieved a gross profit margin of 57.0%, -3.9 pct year on year; building energy saving achieved a gross profit margin of 14.4%, or 4.1pct year on year; and the comprehensive resource utilization sector achieved a gross profit margin of 17.8%, year-on-year.

Profit forecast and investment rating: Considering the slowdown in the distributed photovoltaic industry and increased market competition, we adjusted the company's 2024-2026 profit forecast from 0.452/0.602/0.718 billion yuan to 0.303/0.371/0.497 billion yuan, up -2.3%, 22.4%, and 33.7% year-on-year, corresponding PE to 59 times, 48 times, and 36 times. Due to the steady and steady development of energy efficiency in the main industries, we continue to be optimistic about the company's long-term development and maintain a “buy” rating .

Risk warning: Product prices and gross margin continue to decline due to declining industry demand and increased competition, etc.