Core views

The company released its report for the third quarter of 2024. Revenue for the first three quarters of 2024 was 3.243 billion yuan, up 28.78% year on year; net profit to mother was 0.21 billion yuan, up 27.21% year on year. It is expected that in the first three quarters, demand in the global new energy industry will be strong, demand in the lighting market will pick up, incubation business will increase, and the company's product delivery will continue to advance. The company's gross margin is expected to decline in the third quarter due to price fluctuations and other factors. From an industry perspective, overseas demand continues to improve, and the industry is booming. The company is deeply involved in overseas markets, actively promotes direct product exports, and expands product types. It is expected that its performance will pick up in the fourth quarter.

occurrences

The company released its report for the third quarter of 2024. In the first three quarters of 2024, it achieved operating income of 3.243 billion yuan, a year-on-year increase of 28.78%, net profit to mother 0.21 billion yuan, an increase of 27.21% over the previous year; net profit after deducting non-return to mother was 0.191 billion yuan, an increase of 20.73% year-on-year.

Brief review

2024Q3 performance under pressure

1) Net profit attributable to mothers/net profit net income after deduction for the first three quarters of 2024 was 0.21/0.191 billion yuan, respectively, an increase of 27.21%/20.73% year-on-year.

2) The third quarter achieved operating income of 1.19 billion yuan, a year-on-year increase of 26.01%; net profit to mother was 0.034 billion yuan, a year-on-year decrease of 54.60%; net profit after deducting non-return to mother was 0.027 billion yuan, a year-on-year decrease of 61.23%.

Gross margin fluctuated in Q3 and expected to pick up in Q4

1) The gross margin for the first three quarters of 2024 was 22.14%, up 0.8 pct year on year; looking at the third quarter of a single year, gross margin was 17.97%, down 6.5 pct year on year.

2) Gross margin is expected to fluctuate significantly in the third quarter due to a combination of factors such as product price fluctuations, changes in overseas freight rates, and exchange rate fluctuations.

3) It is expected that in the future, as the large-scale effect promotes cost reduction and efficiency, the company will accelerate the application of new technology and product iterative upgrades, and the share of overseas customers will gradually increase, etc., gross margin fluctuations will weaken, and Q4 gross margin will recover.

The sea view is high, and overseas demand continues to be strong

1) Driven by global demand for new energy installations, grid upgrades, and re-industrialization, we maintain a positive judgment on overseas equipment demand in 2024.

2) According to data from the General Administration of Customs, the cumulative export value of China's transformers from January to September 2024 was 33.2 billion yuan, an increase of 27.3% over the previous year; in September, the export value was 4.53 billion yuan, an increase of 21.2% over the previous year, and transformer exports continued the good growth trend. Overseas demand continues to improve, and the company will benefit as an export-oriented enterprise.

Issuing an equity incentive plan to demonstrate confidence in future development

1) Size: On April 30, 2024, the company announced the 2024 Stock Options and Restricted Stock Incentive Plan (draft). The stock options to be awarded are 2.7 million shares, accounting for about 0.69% of the company's total share capital; the number of restricted shares is 4 million shares, accounting for about 1.02% of the total share capital, accounting for a total of 1.71% of the total share capital.

2) Assessment goals: One of the following conditions must be met 1) Revenue side: The 2024/2025/2026 revenue growth rate is not less than 25%/50%/80%, that is, the corresponding revenue is 4.54/5.45/6.53 billion yuan, and the 2024/2025/2026 revenue growth rate is 25%/20%/20%, respectively. 2) Performance side: Net profit after deducting non-recurring profit and loss in 2023 is the base, and the growth rate of non-net profit deducted in 2024/2025/2026 is not less than 30%/60%/90%, that is, the corresponding deducted non-net profit scale is not less than 0.26/0.32/0.38 billion yuan.

Performance forecasts

The estimated net profit for 2024/2025 is 0.35/0.45 billion yuan, PE 18.3/14.2x.

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.