1H24 results slightly lower than market expectations

The company announced 1H24 results: revenue of 11.8 billion yuan, +10.9% YoY; net profit to mother of 0.661 billion yuan, +0.9% YoY. Among them, 2Q24's revenue was 6.72 billion yuan, -14.3% YoY, +32.4% month-on-month; net profit to mother was 0.356 billion yuan, or -59.5% YoY, +17.2%. The company's 1H24 performance was slightly lower than market expectations, mainly due to the fact that the company's fan gross margin was still under pressure and the warranty accrual ratio increased, which dragged down performance.

The gross margin of fan sales is still under pressure, and new orders are plentiful. 1H24 achieved 4.01 GW of fan sales, including 3.49 GW for land wind fans and 0.52 GW for sea wind fans. The gross profit margin for integrated fans was 7.69%, down 6.56ppt from the previous year, and the performance is still under pressure. 1H24 achieved 9.73 GW of new orders, an increase of 28.4% over the previous year. As of the end of June 2024, there were 45.36 GW of active orders.

The performance of power generation and power plant transfers has been stable. The company achieved 1H24: power generation revenue of 0.975 billion yuan, a year-on-year increase of 17.05%, gross profit margin of 64.80%, stable performance; sales revenue of power plant products was 2.113 billion yuan, with a gross profit margin of 44.56%, which was a strong performance. The company announced a total of about 900MW power plant transfer plans in June of this year. In addition, 200MW public sale REITS products have already been released. We expect to continue to contribute to the increase in performance of the power plant transfer business in 2H24.

Development trends

Domestic sea breezes and exports are expected to structurally drive a recovery in the company's fan gross margin. According to our previous analysis in the “1H24 Performance Review of Wind Power Equipment”, we expect the industry to gradually enter the start-up phase starting in 2H24, and is expected to enter a state of small-scale installation in 2025. We expect the company to achieve a significant increase in seabreeze exports in 2025 along with seabreeze in advantageous regions such as Guangdong. Furthermore, the company actively lays out overseas, and is also the first domestic wind power company to fulfill orders for European ocean fans in batches. We expect that the company will gradually increase overseas deliveries starting in 2025, which will structurally drive the company's fan gross margin upward trend along with domestic sea breezes.

Profit forecasting and valuation

Due to the recovery in the company's fan gross margin slightly lower than previously anticipated and the increase in the warranty accrual ratio starting in 2024, we lowered the company's 2024-2025 net profit forecast of 33.0% and 13.5% to 1.798 billion yuan and 2,808 billion yuan. The company's current stock price corresponds to 11.1 and 7.1 times price-earnings ratios in 2024 and 2025. We are optimistic about the upward trend of the company's fan profits driven by sea breezes and exports, and keep the company's outperforming industry rating and target price of 11.8 yuan unchanged, corresponding to 14.9 and 9.5 times price-earnings ratios in 2024 and 2025, with 34.5% upside compared to the current stock price.

risks

Increased competition in the industry puts pressure on the company's fan shipments and profit margins; industry demand falls short of expectations; depreciation pressure continues.