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 3.747 billion yuan, a year-on-year decrease of 4.89%, net profit of 0.298 billion yuan, a year-on-year decrease of 13%, after deducting 0.293 billion yuan in non-net profit, a decrease of 3.22%; in the third quarter, the company achieved operating income of 1.065 billion yuan, a decrease of 4.38% year-on-year, and a net profit of 0.066 billion yuan. billion yuan, a year-on-year decrease of 33.3%.

Incident comments

In terms of revenue, the year-on-year decline in Q3 revenue is mainly due to the slow pace of delivery in the power grid digitization industry this year. Currently, the company's inventory at the end of Q3 was 0.67 billion yuan, an average increase of 40-50% over the same period last year. We believe there is strong support for Q4 delivery and revenue.

In terms of gross profit, the company's gross margin for the first three quarters reached 21.16%, up 0.59pct year on year. The gross margin for Q3 reached 24.04%, a slight decrease of 1.13pct year on year. It is mainly expected to be affected by the product delivery structure.

In terms of expenses, the company's expense rate for the first three quarters reached 15.7%, up 1.8 pct year on year. Among them, the cost rate for the third quarter reached 19.1%, an increase of 1.5 pct over the previous year. Among them, the sales rate increased by 0.72 pct and the R&D rate increased by 0.82 pct. In addition, the company's net income from Q3 investment decreased by about 9 million yuan year over year. Ultimately, it has a certain impact on profit margins.

At present, the 4th batch of State Grid digital tenders has been released. The equipment and services in this tender have all shown a large volume. The total volume of hardware equipment and application software reached 65,573 sets, an increase of 200% over the previous year, and 4,391 projects were developed and implemented, an increase of 1,462 times over the previous year. Looking at the whole year, the total number of software and hardware sets in 24 reached 18,9013, an increase of 6.92% over the previous year, and the total number of development and implementation projects reached 4,641, a slight decrease of 8.33% over the previous year. This tender has basically leveled the volume of digital recruitment throughout the year, highlighted the direction of the boom, and is expected to support the company's subsequent orders and operations.

We believe that the development path of power grids in terms of digital intelligence is gradually becoming clear, the demand for artificial intelligence and intelligent distribution networks is gradually being released. As one of the core digital construction units under the State Grid, the development prospects are still the same, and the commitment to resolve competition in the industry is still worth looking forward to. We expect the company to have a net profit of 0.9 billion yuan in 24 years, corresponding to 31 times the valuation, and maintain a “buy” rating.

Risk warning

1. The speed of digital investment and development of power grids falls short of expectations;

2. Out-of-network business is progressing faster than expected.