Description of the event

The company released its three-quarter report for 2024: during the reporting period, the company achieved operating income of 1.989 billion yuan, an increase of 18.82% year on year; realized net profit of 0.097 billion yuan, an increase of 58.81% year on year; realized net profit deducted from non-mother 0.092 billion yuan, an increase of 30.37% year on year.

Incident reviews

Benefiting from the company's expansion in new fields to achieve the expected results, the company's revenue achieved steady growth in the Q3 single quarter, and the profit side improved significantly. Net profit after deducting net profit from back to mother achieved positive year-on-year growth for the first time since 2022/Q4, reaching 0.051 billion yuan (+89.98%). During the reporting period, the company continued to be deeply involved in the power grid sector to ensure the stability of the basic performance market; closely grasped the industry trend of intensive procurement and accelerated e-commerce procurement by central enterprises, drew on the power grid business model, expanded and continued to deepen from the power grid sector to key strategic industries such as petroleum, petrochemicals, power generation, etc.; and achieved revenue of 0.805 billion yuan in 2024 Q3, up 19.64% year on year and 7.95% year on month; achieved net profit of 0.054 billion yuan, up 101.44% year on year It increased 60.83% month-on-month, mainly benefiting from sales revenue and gross profit growth, taking into account factors such as reduced revenue losses due to changes in fair value; net profit not attributable to mother was 0.051 billion yuan, an increase of 89.98% year-on-year, and 53.91% month-on-month.

Profitability rebounded, with net profit margin 6.98% (+3.01pct) in Q3, up 2.17pct month-on-month; gross profit margin 27.31% (1.91pct). In previous years, when the company entered a new field, it invested more and made less profit. With continuous breakthroughs in new fields, its profitability will increase steadily. In the first three quarters, the company's net profit margin was 5.03%, up 1.28 pct year on year; gross profit margin was 27.91%, down 1.76 pct year on year. Single Q3 net profit margin was 6.98%, up 3.01 pct year on year, up 2.17 pct month on month; gross profit margin was 27.31%, up 1.91 pct year on year, down 1.92 pct month on month.

During the reporting period, the company's measures to improve quality and efficiency achieved the expected results. The cost ratio for the period decreased by 2.19pct year-on-year to 21.05%. Among them, the sales expense ratio was 10.72%, down 2.05 pct year on year; the management expense ratio was 8.89%, down 0.39 pct year on year; the financial expense ratio was -0.28%, up 0.05 pct year on year; and the R&D expense ratio was 1.72%, up 0.20 pct year on year.

The renewal of power equipment drives the growth of related industrial chains, and the acceleration of power grid investment is driving demand for electrical instruments to improve, providing strong support for the company's future performance. (1) The help of large-scale equipment renewal policies will not only increase investment in new production capacity for intelligent and high-end power grid equipment, but also facilitate long-term capital investment to support future equipment transformation and upgrading. In recent years, the company has closely adapted to the trend of digital development of power grids, and has continued to advance in the MRO business field of tools and instrumentation products, providing rich general industrial products required for power infrastructure construction and achieving green and intelligent upgrades of power grid equipment. (2) The instruments in the company's MRO products are mainly electrical instruments. The growth rate of power grid investment has maintained a high level in recent years, which is conducive to the sale of products related to electrical instruments. During the “13th Five-Year Plan” period, the total investment in the national power grid was about 2.57 trillion yuan, while the total planned investment for the two networks during the “14th Five-Year Plan” period was 2.9 trillion yuan, with an average annual investment of about 580 billion yuan. The central increase was significant. In order to speed up the construction of a new power system, promote the high-quality development of new energy sources, and promote large-scale equipment upgrading, in 2024, the State Grid will invest more than 600 billion yuan throughout the year. The total investment amount reached a record high, the highest year-on-year increase in recent years.

According to the company's prospectus and Markets and Markets data, the global digital multimeter market is expected to grow from US$0.847 billion in 2019 to US$1.047 billion by 2024.

Investment advice

China's MRO intensive procurement office is in its infancy. It is a long slope heavy snow track. China's MRO market is in a rapid transition stage from traditional scattered procurement to intensive procurement. In recent years, large central enterprises have been speeding up intensive procurement, and the company itself is in a rapidly growing industry. The company is an intensive MRO supplier of tools, instruments and other products. As a dedicated channel for instruments, it is an important link in the electronic testing and measuring instruments industry chain. It is expected to achieve accelerated growth under the wave of equipment updates and autonomy and control. (1) From the revenue side, while the company is deeply involved in power grids and maintains a basic performance market, it is also vigorously expanding into new industries such as oil and gas, power generation, and new e-commerce. Currently, the expansion in new fields has basically met expectations, and the volume of revenue in new fields is gradually increasing. It is expected that this trend will continue for some time to come. (2) From the profit side, the company's combined measures are expected to further raise the level of gross margin: in the future, the company will continue to advance in the power grid field; in the newly expanded e-commerce business field, it will gradually replace non-standard products to increase the share of non-standard products; at the same time, as the scale of revenue increases, procurement capacity increases, and procurement costs decrease, which is also expected to further improve the company's gross margin level.

Taking into account the industry situation and the company's development strategy, we expect the company's net profit to be 0.2, 0.26, 0.37 billion yuan and EPS 0.5/0.6/0.9 yuan in 2024-2026. According to the closing price of 13.37 yuan on November 6, the corresponding PE is 27/22/15 times. For the first time, it covers the investment rating of “holdings increase-A”.

Risk warning

Business dependency on the power grid sector: for example, major changes in national industrial policies, overall investment plans for the power industry, transmission and distribution development plans, or whether the company's market development methods, product performance, after-sales service, etc. do not meet the requirements of the demand side, which may have a great adverse impact on business performance;

Risk of increased market competition: If the company cannot continue to grow its comprehensive strength, expand its business scale, and consolidate and enhance its leading product position, it may be at a disadvantage in future market competition and unable to continuously obtain orders, which will adversely affect the company's business performance;

Risk of seasonal fluctuations: Affected by customer business behavior, there are obvious seasonal fluctuations in the company's business performance. This seasonal characteristic may have a certain impact on the company's production organization, capital allocation and operating costs;

Management risks caused by the expansion of new fields and scale expansion: In the early stages of entering a new field, the company did not have a good understanding of new field scenarios, insufficient understanding of products and customer credit, and deficiencies in product gross profit margin, service capabilities, and accounts receivable risk in the new field. For example, the company failed to quickly replicate the business model of the original power grid into the new field, which would have a certain adverse impact on the company's development. At the same time, the rapidly expanding business scale has extended the company's management span, thus placing higher demands on the company's operation and management capabilities.