1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 28.99 billion yuan, +4.1% year on year; net profit to mother of 1.922 billion yuan, +1% year on year, net profit of 1.909 billion yuan, +3.6% year on year, 2Q24 revenue 13.07 billion yuan, +7.9% year on month, net profit of 0.84 billion yuan year on year, +19.8% year on year, -22.1% month on month, in line with our expectations.

By sector: 2Q24 low-voltage electrical revenue was 5.575 billion yuan, +3.74% year over year, net profit to mother 0.497 billion yuan, +25.42% year on year; new energy revenue was 7.616 billion yuan, +10.47% year over year, and net profit to mother 0.345 billion yuan, +12.64% year on year; of these, Zhengtai Aneng 2Q24's net profit was 0.64 billion yuan, a slight increase over the same period last year, +50.6% year over year.

Development trends

Low voltage appliance profitability repair. The net profit of 2Q24's low-voltage electrical appliances was 0.497 billion yuan, +25.42% year-on-year, 1H24 net profit of 1.205 billion yuan after deducting central control, and +20.63% year-on-year. The 2Q24 low-pressure gross profit margin was 29.44%, an increase of nearly 2 percentage points over the previous year, and a slight increase over the previous month. The gross margin of the low-pressure sector in China increased by nearly 4 percentage points in 2Q24 over the same period last year. We believe that it is mainly due to price increases and cost control. The company raised prices for low-voltage electrical products 3 times in the first half of the year. Of these, the price increase of 3-6.5% for main products was carried out in April and June. On the cost side: 1) technical cost reduction, 2) external management through financial instruments, 3) sales expenses reduced by 0.6 ppt by 1H24, while the company increased the proportion of high-value products. 1H24's low-pressure net margin was repaired by 1.6ppt to 10.3% year on year (7% for the full year of 2023). We estimate that the increase in 1ppt net margin is expected to bring net profit elasticity of more than 0.2 billion yuan.

Sales slowed in 2Q24 due to distributed market entry expectations, recent improvements in market development and transactions, and the company maintained its annual household PV target. 1H24 Zhengtai Aneng added 6.45 GW of installed capacity and 3.14 GW of sales. The new development volume was +19.4%, and sales volume fell 18.7%, mainly due to the slowdown in 2Q sales. We believe it was mainly affected by the implementation of distributed market entry policies expected by the market and the slowdown in acquisitions by investors. Since July, market expectations have been implemented or relatively moderate. The electricity price policy for old power plants may be relatively stable, and enthusiasm for market development and trading has been restored. The company maintained an annual grid connection target of 15 GW, a trading asset target of about 8.5 GW in the second half of the year, and achieved 11.5-12 GW for the whole year. At the same time, asset trading volume remained healthy in the first half of the year. The sale price was 3 yuan/watt without tax, and the gross profit was more than 10%.

Profit forecasting and valuation

Considering that the profit recovery in the low-voltage electrical appliance business is in line with our expectations, the company maintains household development and sales targets throughout the year. We maintain our 2024/2025 net profit forecast of 4.43/5.15 billion yuan, maintain a performance rating, and maintain a target price of 28 yuan, which corresponds to a price-earnings ratio of 13.6/11.7 times 2024/2025, with 59.5% upside compared to the current stock price. The current stock price corresponds to 2024/2025 8.5/7.3 price-earnings ratio.

risks

Low-pressure profit recovery fell short of expectations, macroeconomic growth was weaker than expected, and household demand and acquisitions slowed.