Incident: In the first three quarters of 2024, the company achieved cumulative operating income of 2.31 billion yuan, a year-on-year decrease of 11.6%; realized net profit of 0.25 billion yuan, a year-on-year decrease of 36.9%; and realized net profit deducted from non-mother of 0.26 billion yuan, a year-on-year decrease of 17.7%. With 2024Q3, the company achieved operating income of 0.93 billion yuan, a year-on-year decrease of 13.4%; realized net profit of 0.1 billion yuan, a year-on-year decrease of 50.4%; realized net profit deducted from non-mother 0.1 billion yuan, a year-on-year decrease of 33.1%.

Net interest rates are under pressure in the short term, and the expense ratio has increased slightly. Profit side: Gross margin and net margin for the first three quarters of 2024 were 37.5%/11.8%, respectively, and +3.1 pp/ -3.7 pp, year over year, respectively. 2024Q3 gross margin and net margin were 35.9%/10.7%, respectively, or 0pp/-8.1pp year-on-year, respectively. Expense side: The sales/management (excluding R&D) /finance expense ratios for the first three quarters of 2024 were 9.3%/4.6%/1%, respectively, +1.1 pp/+0.4 pp/+0.3 pp, respectively.

The share of overseas business increased quarterly, and the gross margin of new energy sources increased further. In the first three quarters of 2024, by product, the company's new energy electronic control business achieved revenue of 1.8 billion yuan, a year-on-year decrease of 13.4%, gross margin of 34.3%, a year-on-year increase of 2.8 pp; the engineering transmission business achieved revenue of 0.32 billion yuan, a year-on-year decrease of 6.3%, and gross margin of 41.3%, a year-on-year decrease of 3.6 pp. Looking at the subregion, the company achieved domestic revenue of 2.1 billion yuan, a year-on-year decrease of 15%; gross margin was 35.6%, up 2.6 pp; overseas revenue was 0.17 billion yuan, up 69.8% year on year, gross margin was 51.1%, up 3.9 pp year on year. Overseas gross margin was 15.5 pp higher than domestic, and overseas business operations were impressive. Among them, the share of overseas revenue increased to 8.2% in Q3 (6.7% in 24Q1 and 7% in 24Q2), the share of high-margin products increased, and the structure was optimized.

The energy storage business covers a wide range and has the potential for continued growth. According to the “Electrochemical Energy Storage Power Plant Industry Statistics for the First Half of 2024”, 24H1 ranked in the top five PCS manufacturers for total operating power. The company's energy storage business has achieved full coverage on the power grid side, power generation side, and user side. On the power grid side, the company has helped several 100 megawatt independent energy storage plants to be successfully put into operation; on the power generation side, the company has delivered more than 100 single units of new energy storage and many harsh environment application projects; on the user side, the company has achieved application results in many industrial and commercial storage projects. In addition, the company's newly launched standalone 2.5MW PCS uses leading technical advantages to achieve GW-level batch delivery.

Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 3.62, 4.49, and 5.3 billion yuan, respectively, and net profit due to mother for the next three years will be 0.39, 0.52, and 0.65 billion yuan, respectively. The company is an established domestic wind power converter company. It uses the same technology to switch to optical storage inverters to achieve rapid development. It uses the advantages of platformization to break through high-power IGCT multi-transmission inverters, and domestic replacement is expected to accelerate due to product cost advantages. The company's multiple businesses are at the forefront of the industry. Together with LONGI, it has a broad space for hydrogen energy, giving the company 20 times PE in 2025, corresponding to a target price of 23.20 yuan, maintaining a “buy” rating.

Risk warning: risk that production capacity of wind power converters and photovoltaic inverters will fall below expectations; risk of falling product prices and gross margin; risk of domestic substitution falling short of expectations; risk of hydrogen energy business expansion falling short of expectations.