Incident: The company released a report for the third quarter of 2024. The company achieved operating income of 7.233 billion yuan, -6.12%; net profit to mother of 0.481 billion yuan, -6.58% YoY, net profit of 0.228 billion yuan, or -52.82% YoY; of these, Q3 achieved revenue of 1.474 billion yuan, 4.5.61% YoY, -48.44%; net profit to mother 0.084 billion yuan, YoY- 20.43%, -60.20% month-on-month, net profit of 0.026 billion yuan after deducting net profit of 0.026 billion yuan, year-on-year -74.61%, +16.82% month-on-month.

The photovoltaic power plant business+production capacity climb affected current revenue. The Q3 gross margin improved markedly on the revenue side. The company's Q3 revenue fell 45.61% year on year. The main reason was that the company's photovoltaic power plant engineering business was severely affected by fluctuations in PV module prices and the new energy consumption situation. The installation speed and installed capacity declined. Superimposed equipment manufacturing was affected by relocation and production capacity climbing, and the decline in business revenue was quite obvious. On the profit side, the company's Q3 net profit after deduction from mother fell 74.61% year on year. The main reason was that the second phase of the new food waste disposal project was put into operation. Depreciation and amortization of assets began to be calculated, affecting current profits. In addition, competition in the boiler equipment market intensified, and gross margin was under pressure. In terms of profit margins, the company's Q3 gross sales margin/net margin was 21.96%/8.76%, respectively, and +8.82pct/-0.51 pct, respectively. The gross margin improved significantly from month to month. The net margin was pressured by the increase in sales and management expenses and increased R&D investment in new businesses.

The hydrogen energy and fire reform business potential is expected to become a new growth point in the future. Hydrogen energy is an effective implementation method for long-term energy storage on the source side, helping to increase consumption levels. As central and local support policies continue to be implemented, the hydrogen energy industrialization process is progressing steadily. While consolidating its dominant position in the energy and environmental protection business, the company has laid out alkaline electrolyzer manufacturing equipment. Currently, it has received large-scale hydrogen energy orders. At the same time, the company is expanding its thermal power flexibility transformation business, which is expected to support future growth.

Investment advice

We expect the company's net profit to be 0.66/0.804/0.903 billion yuan in 2024-2026, respectively, corresponding to 13/11/10 times PE, maintaining an “increase in holdings” rating.

Risk warning

Demand for fire reform falls short of expectations; demand for electrolyzer equipment falls short of expectations; risk of fluctuations in raw material prices.