Dongfang Electric released its 2024 three-quarter report. The first three quarters achieved operating income of 47.025 billion yuan, a year-on-year increase of 7.07%, and realized net profit to mother of 2.625 billion yuan, a year-on-year decrease of 9.86%. 24Q3 achieved operating income of 14.097 billion yuan, a year-on-year decrease of 3.28%, and realized net profit to mother of 0.933 billion yuan, an increase of 2.6% over the previous year. The results were in line with our expectations.

Gross margin bottomed out and rebounded. The company's gross margin declined sharply in 24Q2 (only 12.65%, down 6.04pct month-on-month). The five major business segments declined year-on-year in the first half of the year (renewable energy equipment -3.65pct, clean and efficient energy equipment -1.43pct, engineering and trade -8.61 pct, modern manufacturing services -5.69pct yoy, and emerging growth industries -1.32pct yoy). The overall gross margin of the 24Q3 company reached 16.63%, down 0.72 pct year on year, but it increased sharply by 3.99 pct from month to month. The overall gross margin is close to the normal level in recent years. It is expected to be related to the gradual digestion of low-priced coal and electricity orders, etc. It is expected that as high-priced coal and electricity orders enter the delivery period one after another, the company's revenue and profitability are expected to rebound, and subsequent performance growth is expected to resume.

Expense rates have remained stable, and the impact of changes in fair value on profit and loss has weakened. The company's third-quarter sales/management/R&D/finance expense ratios were 2.36%/4.72%/4.50%/0.08%, respectively. The year-on-year changes were -0.14/-0.67/+0.23/ -0.16pct, respectively, a total decrease of 0.74pct. The overall cost rate for the Q1-Q3 period was 10.69%, a slight decrease of 0.18 pct from the previous year, and the cost rate remained stable. Furthermore, the exchange of 24H1's non-monetary assets into Chuaneng Power's shares declined, leading to a loss of 0.181 billion yuan in non-monetary asset exchange. The value of this portion of 24Q3's equity increased as the market recovered, and the negative impact on the company's overall performance weakened.

There are plenty of orders in hand, which effectively supports future growth. The company achieved a total of 81.25 billion yuan of effective orders in the first three quarters (up 26.5% year on year), including 32.77 billion yuan for clean and efficient energy equipment (down 1.0% year on year), 21.98 billion yuan for renewable energy equipment (up 18.2% year on year), engineering and trade (down 7.7% year on year), 6.94 billion yuan for modern manufacturing services (down 26% year on year), and 10.64 billion yuan for emerging growth industries, year on year 1.1% increase.

The company has plenty of orders in hand, and future growth can be expected.

Profit forecast and rating: We expect the company's net profit to be 3.61/4.68/5.47 billion yuan in 2024-2026, with year-on-year growth rates of 1.8%/29.5%/16.9%, respectively. The PE corresponding to the current stock price is 13/10/9 times, respectively.

We believe that with capital expenditure increasing in coal power, nuclear power, hydropower, etc., the company's future performance can be expected to grow and maintain a “buy” rating.

Risk warning: The growth rate of electricity consumption in the whole society falls short of expectations, nuclear power construction falls short of expectations, and flexible transformation falls short of expectations