Description of the event

The company released a report for the third quarter of 2024. In the first three quarters, the company achieved operating income of 7.885 billion yuan, a year-on-year increase of 5.88%, net profit of 0.857 billion yuan, a year-on-year increase of 55.13%, after deducting non-net profit of 0.848 billion yuan, an increase of 54.91%; in the single third quarter, the company achieved operating income of 2.843 billion yuan, an increase of 8.42% year-on-year, and net profit of 0.323 billion yuan, a year-on-year increase of 47.72%, after deducting non-net profit 0.316 billion yuan, a year-on-year increase of 46.45%. The results fell within the previously forecast range.

Incident comments

The company's revenue growth rate in the third quarter was slightly faster than in the previous two quarters, which is expected to be mainly due to faster delivery of key projects. In the 1st to 3rd quarter of 2024, the national power grid project investment amount reached 398.2 billion yuan, an increase of 21.1% over the previous year. Of these, 144.2 billion yuan was invested in the third quarter, an increase of 16.95% over the previous year, which is expected to support the company's revenue.

In terms of gross profit, the company's gross margin reached 24.27% in the first three quarters, up 4.29pct year on year, 25.58%, 4.17pct year on year, and 3.21pct month-on-month. The gross margin is expected to increase significantly, mainly due to increased delivery share of ultra-high voltage products in key projects and significant internal cost reduction and efficiency effects, and the gross margin of the company's distribution network business is also expected to increase to a certain extent.

In terms of expenses, the company's expense rate for the first three quarters reached 10.54%, an increase of 1.03 pct over the previous year. Among them, the cost rate for the third quarter reached 12.52%, an increase of 1.6 pct over the previous year, mainly due to a significant increase in management and R&D rates. Among them, the Q3 management rate reached 4.17%, a year-on-year increase of 1.14pct, and the R&D rate reached 4.8%, and an increase of 1.16pct year-on-year. The company's R&D cost rate has increased a lot. The main thing is to implement high-quality development strategies in the high-voltage and distribution network sector, increase “stuck neck” technology research efforts, speed up the layout of new products, and promote high-quality industrial development through scientific and technological innovation. The increase in the company's management cost ratio is mainly due to the company carrying out management improvement tasks such as excellent performance, and the increase in intermediary fees and labor costs. In the end, the company's net profit margin for the first three quarters reached 10.87%, an increase of 3.45 pcts over the previous year.

The company's inventory reached 2.3 billion yuan at the end of the third quarter, an increase of 24% over the previous quarter, indicating that subsequent deliveries are still large. In addition, the State Grid transmission and transformation equipment tenders maintained year-on-year growth in the first half of the year. Considering that Ganzhe and Dadong UHV orders are about to be tendered, the company's UHV orders still have great potential for growth. We expect the company's profit to be 1.167 and 1.663 billion yuan in 24 and 25, corresponding to a valuation of 22.1 and 15.5 times, maintaining a “buy” rating.

Risk warning

1. Grid investment falls short of expectations;

2. UHV construction falls short of expectations;

3. Financial and exchange rate risks.