Incident: The company released its 2024 three-quarter report, achieving revenue of 1.101 billion yuan, up 24.76% year on year, and net profit of 40.9488 million yuan, up 10.45% year on year; of these, revenue for the third quarter was 0.456 billion yuan, up 40.97% year on year, and net profit to mother was 13.1132 million yuan, down 15.03% year on year. The results were in line with expectations.

Ongoing orders were gradually confirmed, and revenue increased dramatically. The company's revenue increased dramatically in the third quarter. We judge that the company's large on-hand orders began to gradually be confirmed on the revenue side. The total number of active orders placed by the company at the end of the mid-reporting period was 3.743 billion yuan, and the scale of on-hand orders was about 2.7 times the company's annual revenue in 2023. The three-quarter report reported that the company's contract debt was 1.363 billion yuan, an increase of 11.45% over the previous year. Considering that the company's order confirmation cycle is generally 1-2 years, it is expected that subsequent revenue will continue to grow at a high rate.

Total profit increased markedly, and the sharp increase in actual income tax rates caused performance disturbances. 1) Gross margin declined in the first three quarters: the gross profit margin for the first three quarters was 23.88%, down 3.56 percentage points from the previous year. Among them, the gross profit margin for the third quarter was 21.74%, down 4.61 percentage points from the previous year. We judge that it is mainly due to quarterly project confirmation structural disturbances, and it is expected to pick up in the fourth quarter. 2) The overall expense ratio declined, and the financial expense ratio increased due to exchange losses: the company's fee rate for the first three quarters was 18.53%, down 2.10 percentage points year on year. Among them, sales, management, R&D, and finance expenses were 6.65%, 8.30%, 2.39%, and 1.19%, respectively, down 0.85, down 2.63, up 0.15, and 1.24 percentage points year on year; the company's expense ratio for the third quarter was 15.19%, down 4.52 percentage points year on year, including sales, management, R&D, and finance expenses, respectively 5.80%, 5.56%, 2.15%, and 1.68% were up 0.48, down 5.69, down 0.74, and 1.44 percentage points, respectively, from the previous year. We judge that the increase in the financial expense ratio is mainly due to exchange rate fluctuations due to exchange rate fluctuations. 3) Total profit increased significantly, and the sharp increase in the actual income tax rate affected net profit: total profit increased 17.23% year on year in the first three quarters, and 18.83% year on year in the third quarter.

The actual income tax rate for the first three quarters was 26.35%, up 9.85 percentage points year on year. The actual income tax rate for the third quarter was 47.18%, up 32.06 percentage points year on year. We judge that the sharp increase in the actual income tax rate in the third quarter was due to unsynchronized revenue recognition during the consolidated statements of the subsidiary and parent company. There is room for recovery throughout the year, and it is likely that it will return to normal levels.

A domestic technology leader in cooling towers, focusing on domestic alternatives to nuclear power and liquid cooling. 1) Nuclear power: In nuclear power plants, it is a conventional island and a nuclear island cooling system, respectively. The technical threshold within the nuclear island is high, and it was previously monopolized by foreign products. The company has been deploying nuclear power cooling towers for many years. With its technological pioneering advantage, it has already received orders for cooling towers within nuclear islands in 2023 and has begun to lead the industry in domestic substitution. Currently, 5 newly approved domestic nuclear power projects have begun to involve shallow seas, and the application ratio and value of cooling towers are expected to increase. 2) Liquid cooling: The market focus is mainly on the secondary side near the chip, ignoring the essential equipment on the primary side - the cooling tower. Currently, it is mainly monopolized by US companies. As a leader in the domestic cooling tower industry, Seagull is actively preparing relevant certifications, and the potential space for domestic replacement is worth looking forward to.

Profit forecasting and valuation. Considering the company's sufficient on-hand orders and growth potential for nuclear power, AI liquid cooling, hydrogen energy, etc., we expect the company's net profit to be 0.101 billion yuan, 0.132 billion yuan, and 0.166 billion yuan respectively in 2024-2026, corresponding to the stock price PE of 22X, 17X, and 13X on October 30, maintaining an “gain” rating.

Risk warning: Overseas business progress is blocked, AI computing power release falls short of expectations, green hydrogen industry development falls short of expectations