Key points of investment

The company is a leading private power equipment company. The product category continues to expand, overseas business is developing rapidly, and profitability continues to improve. The first half of 2024 achieved revenue/net profit of 6.17/0.89 billion yuan, up 16.3%/26.6% year on year. Strong demand for the company's core high voltage switch and coil products (represented by transformers) led the company's overall gross margin to increase by 2.7 pct to 31.8% year on year (of which switch/coil products increased by 3.8/0.7 pct year on year). In 2024, the target is to achieve orders of 20.6 billion yuan and revenue of 15 billion yuan, an increase of 25%/20% year-on-year respectively. The company's order and revenue target completion rate over the years is over 95%, and the growth is certain and sustainable.

Domestic: Power grid investment is accelerating, the company's core product layout is complete, technical barriers are high, and profitability is strong: Entering a new power grid investment acceleration cycle. State Grid investment is expected to reach 600 billion yuan in 2024, an increase of more than 14% over the previous year, and main grid investment of 500 kV or more is expected to accelerate and the investment center to rise.

Company: The product range is complete, and the core main equipment switches and transformers are rising in equal amounts. After 30 years of accumulation, the company's product categories cover primary and secondary equipment such as high voltage switches, transformers, reactive power compensation, and relay monitoring.

Switch products: The company's basic market business, gross margin continues to increase. 2020-2023 revenue CAGR 18.2%, and gross margin for 2023 +6.7pct to 33.5% year-on-year. The GIS voltage level of the core product portfolio covers up to 750kV. The technical level is high, the competitive pattern is stable, and the power grid investment market share is leading.

Coil products: Revenue increased rapidly, and transformers were released quickly. 2020-2023 revenue CAGR 23.7%, 2024H1 +51% YoY. Since 2018, the transformer subsidiary has fully absorbed Toshiba technology, and the 2018-2022 revenue CAGR reached 84%, benefiting from the acceleration of main network construction and the incremental demand brought about by the integration of new energy sources.

Overseas: It has perfect product solution capabilities and channel layout, and overseas demand is strong. Developing into the fast track, overseas orders and revenue have grown rapidly in recent years, and it is expected to become an important growth engine. In 2009, the company began to deploy overseas markets, and the 2024H1 overseas business share increased to 25%, and the overseas revenue CAGR reached 25% in 2021-2023.

Overseas situation: Demand for new energy consumption and power equipment replacement is strong, global power grid investment and construction is accelerating; due to insufficient raw materials and capacity expansion capacity, the transformer delivery cycle has been greatly lengthened and prices have risen significantly. Since 2021, China's transformer exports have grown rapidly.

Company capacity: Deeply involved for more than ten years, export business in more than 100 countries and regions, setting up subsidiaries or participating companies in Brazil, Mexico, Switzerland, Kenya, etc., with perfect solution capabilities and sales layout; products continue to pass multi-country qualification certifications, benefiting from continuous increases in volume and profitability of transformers and other products; 2024H1 overseas business achieved revenue of 1.51 billion yuan, an increase of 40.0% year on year; gross profit margin of 33.8%, up 1.5 pct year on year. Orders are growing rapidly. Overseas orders in 2023 were 4.01 billion yuan, an increase of 34% over the previous year, with overseas orders accounting for more than 50% of transformers.

Automotive electronics: Ethylene carbon energy supercapacity technology is leading in the country. Currently, the company has a high market share of targeted mass production projects to hold 70.4% of the shares in ene-crystal carbon energy through two increases in holdings. Ethylene crystal carbon supercapacitor technology is leading in the country, and the company can integrate the technology and product advantages of both parties to empower the main business. Ethylene carbon energy products are highly recognized in the passenger car market. EDLC products have been targeted by more than a dozen car companies, and the project share is over 60% among mass-produced and designated automotive supercapacitor products.

Profit forecasting and valuation

The company's 2024-2026 revenue is estimated to be 15.258/18.656/23.009 billion yuan, YOY 22.5%/22.3%/23.3%; the net profit to mother for 2024-2026 is 2.08/2.6/3.17 billion yuan, YOY is 33.1%/25.2%/22.0%, EPS is 2.68/3.36/4.10 yuan/share, corresponding PE is 27.57/22.02/18.05 times . First coverage, giving a “buy” rating.

Risk warning

Investment in power grids falls short of expectations; risk of overseas expansion falling short of expectations; risk of rising raw material prices; increased risk of industry competition.