Core views

The company released its report for the third quarter of 2024. Net profit due to the first three quarters of 2024 increased 10.39% year-on-year, with an overall upward trend; the third quarter is expected to be affected by fluctuations in the pace of delivery. The company has benefited from accelerated investment and construction of power grids, strong demand in the downstream market. The company's new products and new markets have progressed, and 500 kV high-voltage products have been ordered again. The industry is booming, and grid investment is rising steadily. From January to September 2024, the total amount of power grid investment was 398.2 billion yuan, an increase of 21% over the previous year. Under the demand for delivery from the Shagaohuang base and the delivery of hydropower from the southwest, UHV construction was rigid and continuous.

Thanks to the boom in the industry, as a first-line enterprise, the company has products such as integrated electrical appliances and isolation switches at the forefront of the industry, actively expanding high-voltage products, etc., enriching product categories, and seizing upward opportunities in the industry.

occurrences

The company released its report for the third quarter of 2024. In the first three quarters of 2024, it achieved operating income of 1.132 billion yuan, a year-on-year increase of 6.33%, net profit to mother 0.181 billion yuan, an increase of 10.39% over the previous year; net profit after deducting non-return to mother was 0.169 billion yuan, an increase of 9.64% over the previous year.

Brief review

Q3 Performance fluctuates and is expected to be affected by the pace of delivery

1) Net profit attributable to mother and net profit net income not attributable to mother for the first three quarters of 2024 were 0.181/0.169 billion yuan respectively, up 10.39%/9.64% year-on-year, maintaining an upward trend. The company has benefited from the accelerated investment and construction of power grids, and the prosperity of the power equipment industry has increased.

2) The third quarter achieved revenue of 0.402 billion yuan, a year-on-year decrease of 2.06%; net profit to mother was 0.06 billion yuan, a year-on-year decrease of 24.54%; net profit not attributable to mother was 0.056 billion yuan, a year-on-year decrease of 25.79%; the results for the third quarter of 2024 are expected to be affected by fluctuations in the pace of delivery.

Q3 Gross margin was slightly under pressure, and the cost ratio increased

1) Gross margin for the first three quarters of 2024 was 36.08%, up 1.39pct year on year; in Q3 alone, gross margin was 35.52%, a year-on-year decrease of 2.20pct.

2) Management expenses increased by 30.65%, mainly due to ① payment of new employee shareholding plan shares; ② depreciation of the headquarters building; ③ year-on-year increase in managers' remuneration.

The industry is booming, and the company has relatively sufficient orders

1) ① The construction of new power systems is being accelerated, and grid investment is growing faster. From January to September 2024, the total amount of power grid investment was 398.2 billion yuan, an increase of 21% over the previous year. ② There is strong certainty about UHV development. Under the demand for transportation from the Shagaohuang base and the southwest water and power delivery needs, the construction of UHV lines is rigid and continuous.

2) The industry is booming. The tender amount for the first four batches of electricity transmission and transformation at the State Grid headquarters in 2024 was about 55.5 billion yuan, an increase of about 11.8% over the previous year; of these, the purchase amount of combined electrical appliances was about 13.9 billion yuan, an increase of about 18% over the previous year. The company's combined three categories of products, electrical appliances, isolators, and switch cabinets rank among the highest in the national grid market share.

3) The company disclosed recent bid announcements in March, May, July and September, respectively. The total bid amount for the four wholly-owned subsidiaries was 0.266 billion yuan, 0.229 billion yuan, 0.28 billion yuan, and 0.233 billion yuan respectively, accounting for about 67.5% of the total revenue in 2023; the company's on-hand orders are relatively sufficient to guarantee the company's future performance.

The power transmission and transformation business is expected to contribute to the core increase, and 500kV products won the bid again 1) According to public information, by business segment in the first half of 2024: ① The company's revenue from the transmission and transformation equipment sector was 0.69 billion yuan, up 12.22% year on year; gross margin increased 2.9 pct year on year, mainly due to product design optimization, increased self-control rate, and product structure changes. The transmission and transformation equipment sector continued to contribute core growth in the first half of 2024. ② In terms of power engineering design and engineering service business, the company stepped up its business development efforts, actively controlled costs and actively improved business conditions by adjusting the Changgaohua Network management structure, reducing staff and increasing efficiency. Operating revenue increased 14.32% year-on-year, and operating costs decreased by 3.51%.

2) The 500kV product won the bid again. ① The company started with isolation switch products, and is currently one of the largest domestic manufacturers of high-voltage isolators (including grounding switches), and is at the forefront of the industry; ② In terms of combined electrical appliances, the company is actively expanding GIS products of various voltage levels. The first bid for 500kV combination electrical products won the bid, and received multiple orders in centralized bidding at the State Grid headquarters. For example, it won the bid for 500kV combination appliances again in the fourth batch of 2024; it is expected that the bid will be normalized in the future. At the same time, the company is actively promoting the participation of more voltage-grade GIS products; ③ horizontally expanding more product categories to expand various products such as transformers, power distribution transformers, and inflatable cabinets; and investing 0.096 billion yuan to build a new GIL assembly plant, making it capable of developing, producing and assembling GIL products with a voltage rating of 220-1000kV.

Performance forecasts

The company's net profit for 2024/2025 is expected to be 0.26/0.34 billion yuan, PE 18.0/13.8x.

Risk analysis

1) Demand side: Changes in national infrastructure policies have led to power investment falling short of expectations; power grid investment falls short of expectations; demand for power equipment has declined due to a decline in the growth rate of installed new energy installations; the growth rate of electricity consumption in the whole society has declined; the bidding progress of the two networks falls short of expectations; the progress of UHV construction falls short of expectations.

2) Supply side: Prices of commodities such as copper resources and steel have risen; the supply of power and electronic devices is tight, and the progress of localization falls short of expectations.

3) Policy aspects: Support related to the new electricity market falls short of expectations; the progress of the electricity price mechanism is lower than expected; the progress of the electricity spot market falls short of expectations; and the difference between peak and valley prices of electricity falls short of expectations.

4) In terms of the international situation: the energy crisis has been mitigated more quickly, energy prices have fallen faster; barriers to international trade have deepened.

5) Market side: The competitive landscape has changed drastically; increased competition has caused the profitability of all aspects of power equipment to fall short of expectations; transportation and other costs have risen.

6) Technical aspects: The progress of technical cost reduction is lower than expected; technical reliability is difficult to further improve.