Key points of investment

Incident: The company announced its 2024 semi-annual results. During the reporting period, the company achieved revenue of 0.565 billion yuan, a year-on-year decrease of 5.56%; realized net profit to mother -0.051 billion yuan, a year-on-year decrease of 254.97%; and realized net profit deducted from non-mother of -0.051 billion yuan, a year-on-year decrease of 262.39%. Looking at Q2 alone, revenue of 0.453 billion was achieved, up 8.14% year on year; net profit due to mother was 0.041 billion, down 444.90% year on year; net profit after deduction was 0.042 billion yuan, down 445.71% year on year.

System integration/technical services revenue increased, and comprehensive gross margin declined. By business, 2024H1's system integration/design/technical service business achieved revenue of 0.305/0.106/0.07 billion yuan, yoy +6.27%, -19.13%, and +6.06% respectively. In terms of gross margin, 24H1's comprehensive gross margin was 17.62%, -2.11pct year over year. The gross margins of the system integration/design/technical service business were 8.93%, 33.65%, and 25.67%, respectively, and -0.91%, +0.80%, and +3.86% compared to the same period last year.

The cost rate increased during this period, and new product development consolidated its competitive advantage. In terms of cost ratio, 24H1 company's period cost rate was 23.70%, yoy+2.77pct, sales/management/finance/R&D expense ratios were 6.25%, 8.39%, 3.25%, 5.80%, and yoy+0.63/+0.40/+0.80pct, respectively. The company adheres to a technology-leading development strategy, and R&D expenses remain high, yoy +9.69%. 24H1, based on the 1+N+M system, the company focuses on building an energy IoT big data application product platform with its own property rights in the field of power energy. It has independently developed new products such as source load aggregation interactive response platform products, energy aggregator operation control platform products, virtual power plant trading and operation platform products, carbon emission big data management and operation platforms, and has achieved product application and promotion in power grid companies, power generation companies and the government, enhancing the company's core competitiveness in the digital energy business field. As of 24H1, the company has 68 invention patents, 130 utility model patents, and 535 software copyrights.

Progress has been made in developing various businesses. (1) In terms of digital energy, 24H1 undertook the State Grid Hunan Electric Power's new power load management system optimization application development and implementation project, China Grid Offshore Power Supply System Distribution Network Emergency Repair Digital Transformation Development and Implementation Project, State Grid Gansu Electric Power 2024 Load Resource Assessment Capacity Enhancement Service Project, State Grid Chongqing Electric Power 2024 Load Management Service Project, State Grid Hebei Electric Power 2024 Flexible Load Control Promotion Technology Service Project, State Grid Hebei Electric Power 2024 Large Grid Safety Monitoring and Operation Capacity Improvement Service Projects, such as smart power plant construction (3D digital handover system construction) for Shenzhen Energy Eastern Power Plant; (2) in terms of communication technology services, successively won bids for new regional markets for provincial operators such as Liaoning Telecom's 2024-2026 integrated design, Shandong mobile transmission network (broadband passenger attraction) design supplement, Chongqing Unicom's 2024-2026 integrated design; (3) in terms of intelligent IoT applications, the company undertook various projects such as the Southern Grid Digital Grid Group Hainan Company's measurement system practical application technology service project.

Investment advice and valuation: According to the company's 24H1 performance, we adjusted the profit forecast. The company is expected to achieve sales revenue of 1.297 billion yuan, 1.385 billion yuan, and 1.479 billion yuan in 2024-2026, respectively, with growth rates of -3.7%, 6.8%, and 6.8%, respectively. Net profit attributable to mother was -0.006 billion yuan, 0.02 billion yuan, and 0.038 billion yuan, respectively, with growth rates of -113.9%, 442.4%, and 93.4%, respectively. Maintain an “overweight” investment rating.

Risk warning: Risk of policy advancement falling short of expectations, risk of R&D falling short of expectations, risk of market competition, risk of project construction falling short of expectations.