3Q24 results are in line with our expectations

The company announced 2024Q3 results: 2024Q1-3 revenue of 0.149 billion yuan (YoY +15.7%) and net profit to mother of 7.06 million yuan (+255% YoY), in line with our expectations.

2024Q1-3's net profit margin increased 3.2ppt year over year. The company's gross margin fell 8ppt to 41.4% year-on-year in the first three quarters, mainly driven by intelligent equipment in the nuclear industry. In the first three quarters, the company focused on internal control. Sales/management/finance/R&D expense ratios were -0.2/-2.7/+3.6/-14.5ppt, respectively, and the company's net interest rate increased 3.2ppt to 4.7% year on year.

Multiple nuclear industry pre-research & strategic projects are being promoted. According to company exchanges, the third phase of the spent fuel reprocessing demonstration plant and large plant scientific research projects were tendered in an orderly manner, and new orders were full; the company's “AGV+ Specific Scenario Equipment+ Integrated System Solution” layout in the strategic field, and equipment for specific scenarios won the bid through comparison tests, mainly standard products.

Post mid-term dividends to give back to investors. The company announced a mid-2024 dividend plan of 0.05 yuan (tax included) per share, accounting for 71.77% of the company's profit for the first three quarters.

Development trends

US AI giants are deploying nuclear power to drive up valuations. On October 14, Google announced plans to purchase nuclear power to help data center operations. Generative AI is driving demand for energy consumption, and Amazon recently announced that it will invest more than 0.5 billion dollars to develop small modular nuclear reactors (SMR). According to the IAEA, global nuclear power generation will account for nearly 10% of the world's total electricity generation in 2023, accounting for 1/4 of the low-carbon power structure. We believe that the development of nuclear energy in the United States will catalyze the global nuclear energy industry chain.

Profit forecasting and valuation

We keep our 2024/2025 profit forecast unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 43 times/22.8 times. Considering the recovery in the valuation of the nuclear energy sector, we raised our target price by 15% to 44 yuan, corresponding to the price-earnings ratio of 26.8 times in 2025. There is room for an 18% increase compared to the current stock price, maintaining the industry rating.

risks

Nuclear industry revenue confirmation fluctuations, deterministic risks of scientific research prototypes, etc.