3Q24 revenue +29.39% YoY, net profit to mother +34.95% YoY. The performance exceeded our expectations. The company announced 3Q24 results: 1-3Q24 revenue of 10.407 billion yuan, +21.28% YoY, net profit of 1.491 billion yuan, +29.88% YoY. 3Q24 revenue was 4.241 billion yuan, +29.39% year over year, and net profit to mother was 0.604 billion yuan, +34.95% year over year. The performance exceeded our expectations: 1) On the revenue side, we think it was due to abundant orders in hand and the acceleration of the 3Q24 project delivery pace compared to the first half of the year; 2) 3Q24 other revenue increased by 0.033 billion yuan year-on-year, mainly due to the difference in the timing of payment of government grants.

Profitability is generally stable. 1-3Q24's gross margin/net margin was 31.42%/14.33%, +1.32/+0.95ppt, of which 3Q24 gross margin/net margin was 30.96%/14.25%, and -0.85/+0.59ppt. We are optimistic that as the company's share of overseas revenue increases, its overall profitability will steadily increase.

Steady construction of production capacity supports business development. The company announced plans to invest in the “High Voltage Intelligent Combined Electric Appliance (GIS) Production Base Construction Project”, with a total investment of 0.3 billion yuan. The GIS subsidiary accounts for 34% of total revenue in 2023. As the company's main product, GIS benefits from full demand for power grids and high overseas orders. We are optimistic about expanding production to support market business development and achieve continuous revenue breakthroughs. In addition, the company is steadily building a production base for medium voltage switchgear and a base for Siyuan New Energy Company to support business development.

Development trends

Orders are plentiful, contract debt is growing, and I am optimistic that revenue targets will be achieved steadily. The company added 16.513 billion yuan of new orders without tax in 2023, +36.22% year-on-year. As of the end of 3Q24, the company's contract debt was 2.256 billion yuan, +50.74% year-on-year. Considering the company's abundant orders and high increase in contract debt, we are optimistic that it will steadily fulfill its revenue growth target of 20% for the whole year.

Overseas high-pressure supply and demand are still tight, and the prospects for going overseas are broad; domestic demand is expected to maintain steady growth. According to our observations, overseas demand for medium- and high-voltage equipment continues to be booming, and the delivery of foreign orders remains high. We believe that the spillover effects of orders are expected to become more prominent. We are optimistic about the potential of high-quality Chinese investors such as Siyuan to take orders. Within the domestic grid, the power grid project completed investment of 398.2 billion yuan in January-September, an increase of 21.1% over the previous year. We expect the annual growth rate of power grid project investment to be around 10%. The cumulative number of tenders for the 1-4 batches of State Grid modular appliances in 2024 was +7% year-on-year, remaining steady. The abundant number of tenders since 2022 supported the steady implementation of the company's 2024-2025 network performance. On the domestic and off-grid side, the new installed capacity of domestic photovoltaic/wind power was +24.8%/16.8%, respectively, in January-September. The company has diversified product solutions in the field of new energy, and demand for booster grid-connected systems, secondary stations, and SVG is expected to increase.

Profit forecasting and valuation

We keep our 2024/2025 net profit forecast of 2.06/2.55 billion yuan unchanged, and the current stock price corresponds to 27.9x/22.6x 2024/2025e P/E. Maintaining an outperforming industry rating, considering the upward shift in the sector's valuation center, the target value was raised by 8% to 82.0 yuan, corresponding to 30.8x/25.0x 2024/2025e P/E. There is still room for 11% upward compared to the current stock price.

risks

Grid investment fell short of expectations, raw material prices rose, and overseas business expansion fell short of expectations.