Incident: On August 29, the company released its 2024 semi-annual report. During the reporting period, the company achieved revenue of 2.135 billion yuan, up 11.83% year on year; net profit attributable to shareholders of listed companies was 0.072 billion yuan, up 28.33% year on year. Among them, in the second quarter, the company achieved operating income of 1.203 billion yuan, an increase of 29.04% month on month, and achieved net profit to mother of 0.039 billion yuan, up 19.98% month-on-month. 17.77%/3.65%. The business side is expected to stabilize and improve.

24H1 has benefited from the successive deliveries of UHV and UHV, and the capacitor business is progressing steadily. The company's subsidiary, Guilin Capacitor, as an established capacitor powerhouse, has significant comprehensive advantages. During the reporting period, it maintained a leading market share of capacitors and transformer products in the power grid batch bidding market, with a cumulative bid amount of 0.138 billion yuan in the State Grid transmission and transformation equipment tenders; in the field of major engineering projects, it won the bid for the new 1000kV substation construction project in Chengdu East and the Golmud ±400kV converter station expansion project. The cumulative winning amount reached 28.42 million yuan, steadily advancing the Longdong-Shandong ±800kV and Jinshang ±800kV converter station expansion project. Production and delivery of other key engineering projects.

Key projects such as UHV and UHV have been completed and delivered one after another, driving the power capacitor business to achieve operating income of 0.333 billion yuan, an increase of 50.68% over the previous year, and a gross profit margin of 31.7%, making it the company's main profit sector.

The company headquarters made multi-pronged efforts, and Zhejiang Electric's profit improved. During the reporting period, the company's complete switchgear business contributed 1.346 billion yuan in revenue, an increase of 13.68% over the previous year, and achieved a gross profit margin of 14.45%, supporting the scale of performance. Although capital expenditure in many fields such as downstream rail transit, industry, and energy recently slowed, the company continued to explore market segments, and actively improve the high-margin product structure, and achieved a year-on-year increase in the market share of distribution network equipment in the South Grid market. It achieved a year-on-year increase in the 35kV inflatable switch cabinet bid in the State Grid market. In terms of transformers, it contributed 0.284 billion yuan in revenue during the reporting period, down 26.04% from the previous year. The company actively adjusted its bidding strategy to improve order quality. Zhejiang Electric focused on domestic power grids, new energy, industrial terminal markets and overseas markets. Among them, it ushered in breakthroughs in the power grid market. Transformer products continuously won bids in the State Grid transmission and transformation equipment tenders, and the cumulative bid amount reached 0.125 billion yuan during the reporting period. In particular, 220kV products continued to win bids, progressed steadily towards the high-voltage grade field, thanks to order structure optimization and Internal costs were reduced and efficiency increased, the profitability of the transformer business improved, and the product gross profit margin was 17.65% during the reporting period.

Investment advice: The company is expected to achieve operating income of 5.442 billion yuan, 6.155 billion yuan, and 6.69 billion yuan respectively in 2024-2026, and net profit to mother of 0.185 billion yuan, 0.257 billion yuan, and 0.32 billion yuan, with year-on-year increases of 68.4%, 38.9%, and 24.7%. The corresponding EPS is 0.42, 0.59, and 0.73, respectively, and the PE corresponding to the current stock price is 17.7/12.7/10.2 times, respectively. We are based on the following aspects: 1) the company is actively developing cost reduction and efficiency to break away from the “cost quagmire”; products such as high voltage GIS and UHV capacitors can be expected; 2) demand for power grid equipment is booming under the wave of energy transformation. The company has been deeply involved in the power industry for many years and has deep technology and product accumulation. The trend of “leading capacitors, steady headquarters, and transformer improvement” is expected to continue, opening up room for subsequent growth and giving it an “increase” rating.

Risk warning: shortage of raw materials and risk of price fluctuations; new product expansion falls short of expectations; downstream demand falls short of expectations; overseas situation risk and exchange risk, etc.