Event: On August 28, 2024, the company released its 2024 semi-annual report. 2024 H1 achieved operating income of 0.353 billion yuan, +65.68% year over year; net profit to mother 0.039 billion yuan, +775.43% year over year; net profit after deducting non-return to mother 0.036 billion yuan, +1158% year over year. Among them, Q2 achieved operating income of 0.257 billion yuan, +80.30% YoY, +169.66%; net profit to mother 0.047 billion yuan, +389.51% YoY, +690.39% month-on-month; net profit without return to mother 0.045 billion yuan, +422.63% YoY and +610.59% month-on-month.

The revenue side increased significantly year over year, and the profit side's performance exceeded expectations. On the revenue side, 2024 H1's revenue grew rapidly, achieving a year-on-year increase in revenue of about 66%. The main reason is that with the intelligent transformation of China Grid and China Southern Power Grid, the tenders for smart power products from both networks continued to rise. Combined, the company thoroughly visited customers, understood needs, and improved product competitiveness, and achieved excellent results in winning bids for both networks. Among them, the amount won in the second batch of bids for the 2023 State Grid basically completed confirmed revenue in the first half of this year, driving rapid revenue growth.

On the profit side, 2024 H1 achieved a year-on-year increase in net profit of about 775% year-on-year and a 1158% year-on-year increase in net profit without return to mother. The main performance was impressive. The main reason was that the company raised the level of automated production and strengthened cost control, and gradually increased capacity utilization as production increased, showing economies of scale, which increased the gross margin of the company's smart power products in the first half of the year compared to the same period last year, which contributed to a significant increase in net profit from the first half of the year.

The amount of bids won by the State Grid grew rapidly, and since 2020, the South Grid won the bid for the first time. Overall, the overall investment scale of China's power grid has remained at a high level. In 2023, the national power grid project construction completed an investment of 527.7 billion yuan, an increase of 5.4% over the previous year. Judging from the bidding for metering products, the State Grid and China Southern Power Grid together form the most important market for smart power products. The State Grid plans to collect a total of 3 batches of metering equipment in 2024, an increase of one batch over previous years, and the company's ability to win bids is constantly increasing. The company achieved excellent results in the centralized bidding for the second batch of the 2023 State Grid and the first batch of the 2024 State Grid. The winning bid amounts were 0.201 billion yuan and 221 million yuan respectively. In July 2024, China Southern Power Grid announced the results of the first batch of winning bids in 2024. The company won the bid for the first time since 2020. The winning bid amount was about 39.8184 million yuan, completing a new breakthrough in winning the bid for Southern Grid. Benefiting from the construction of the Internet of Things and digital grids, the smart power terminal product market for power grids and power generation companies is expected to expand rapidly, opening up development space for the company's products to grow.

Multi-sector collaborative development has driven the company's performance to a record high. In the field of intelligent inspection, the company has successively established good business partnerships with customers such as State Grid General Aviation, Southern Grid Ultra High Voltage, South Grid Digital Research Institute, China Southern Power Grid Hainan Digital Grid Research Institute Co., Ltd., and has a more complete business chain and actively expanded other fields such as fans and photovoltaics. The three-year CAGR reached 49.83%. In the field of information technology services, the company undertook various scientific research projects in power data application and system development for the State Grid and North China Power Grid, covering various fields such as scheduling and transportation inspection. Revenue increased 58.87% year-on-year in the first half of the year. In the energy storage business field, the company entered the energy storage industry in July 2023 and introduced a core team with professional technology, manufacturing experience and industry vision in the energy storage field. It has completed the construction of automated energy storage production lines and has already implemented some projects, laying a solid foundation for the subsequent development of the energy storage field.

Investment advice: While achieving steady development of the power equipment business, the company is committed to vigorously developing intelligent inspection, information technology and energy storage services to achieve collaborative development in multiple sectors. We expect the company's revenue for 2024-2026 to be 1.153/1.483/1.748 billion yuan, up 105.15%/28.66%/17.89% year on year; net profit to mother is 0.119/0.153/0.182 billion yuan, year-on-year growth rate is 216.31%/28.80%/18.95%, EPS is 0.48/0.62/0.74 yuan respectively, corresponding to the stock price (closing price on September 3, 2024), PE is 16X/13X/11X, maintaining the “Overweight” rating.

Risk warning: risk of grid investment and tendering falling short of expectations, risk of high customer concentration, risk of product quality control, risk of increased industry competition.