Incident: On October 30, the company released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of 3.554 billion yuan, up 20.34% year on year; net profit attributable to shareholders of listed companies was 0.124 billion yuan, up 102.93% year on year. Among them, the company achieved revenue of 1.419 billion yuan in the third quarter, up 17.96% month-on-month, and achieved net profit of 0.052 billion yuan over the previous quarter, and gross margin/net profit margin for the single quarter At 18.15%/3.42%, the operating profit index has been steady and improving for several consecutive quarters.

Ongoing orders are fulfilled as scheduled, driving steady progress in performance. As of the end of 2023, the company's on-hand orders were 8.618 billion yuan. Combined with the project operation and execution cycle, the second half of '24 was the peak delivery season. During the reporting period, the company focused on smart grids, UHV, rail transit and new energy, etc., to seize industry development opportunities, actively explore the market, and continue to expand its performance scale. At the same time, the successive delivery of key projects such as UHV and UHV led to a year-on-year increase in the company's delivery of high-value-added products. In addition, refined management continued to be promoted to reduce costs and increase efficiency, and profitability was significantly boosted.

The effect of fee control was evident, and operating cash flow was corrected. In the third quarter of 2024, the company's sales expense ratio, management expense ratio, and financial expense ratio were 4.83%/4.54%/1.08% respectively, down 2.06/0.11/0.88 pcts from last year. Management efficiency improved significantly, getting rid of the cost dilemma and broadening profit margins.

In terms of cash flow, the company achieved a net cash flow of 0.01 billion yuan from operating activities in 24Q3, which was corrected month-on-month. It is expected to mainly benefit from the actual payback cycle of the project and the increase in the share of high-quality customer structures.

Investment advice: The company is expected to achieve operating income of 5.442 billion yuan, 6.155 billion yuan, and 6.69 billion yuan respectively in 2024-2026, and net profit to mother of 0.185 billion yuan, 0.257 billion yuan, and 0.32 billion yuan, with year-on-year increases of 68.4%, 38.9%, and 24.7%. The corresponding EPS is 0.42, 0.59, and 0.73 yuan, respectively, and the PE corresponding to the current stock price is 21.7/15.6/12.5 times, respectively. We are based on the following aspects: 1) the company is actively developing cost reduction and efficiency to break away from the “cost quagmire”; products such as high voltage GIS and UHV capacitors can be expected; 2) demand for power grid equipment is booming under the wave of energy transformation. The company has been deeply involved in the power industry for many years and has deep technology and product accumulation. The trend of “leading capacitors, steady headquarters, and transformer improvement” is expected to continue, opening up room for subsequent growth and giving it an “increase” rating.

Risk warning: shortage of raw materials and risk of price fluctuations; new product expansion falls short of expectations; downstream demand falls short of expectations; overseas situation risk and exchange risk, etc.