Revenue and net profit remained high, and performance was in line with market expectations. The company achieved revenue of 7.885 billion yuan in the first three quarters of 2024, up 5.88% year on year. Of these, the third quarter achieved revenue of 2.843 billion yuan, up 8.42% year on year, and realized net profit of 0.857 billion yuan, up 55.13% year on year. Of these, net profit for the third quarter was 0.323 billion yuan, an increase of 47.72% year on year, and the company's performance remained high. Gross margin increased sharply. The gross margin for the first three quarters reached 24.27%, an increase of 4.29pct year on year. Of these, gross margin for the third quarter reached 25.58%, an increase of 4.17pct year on year. Overall performance is compounded by market expectations.

The cost rate remained stable during the period. The company's cost rate for the period was 10.54%, a slight increase of 1 pct over the previous year, of which the sales expense ratio was 3.91%, an increase of 0.05 pct; the management expense ratio was 3.32%, an increase of 0.57 pct; the financial expense ratio was -0.46%, an increase of 0.38 pct over the previous year, and the cost rate remained stable during the company period.

R&D expenses increased by 6.94%, which was higher than the revenue growth rate. The growth rate of R&D expenses in the first three quarters reached 6.94%, far exceeding the revenue growth rate. The R&D expenses ratio was 3.78%, an increase of 0.04 pcts over the previous year.

During the reporting period, the company developed the world's first 800 kV fast circuit breaker and the first domestic flexible DC wall bushing resistant to extreme cold weather. The first 550 kV 80 kW high-capacity switchgear in China was successfully put into operation. Master the key techniques for manufacturing 550 kV square insulated rods. Develop 24 kV environmentally friendly ring network cabinets and inflatable cabinets for the international market to accelerate the transformation and upgrading of digital intelligence and environmental protection.

Leading supplier of GIS equipment, fully benefiting from the high-speed construction of power grids. According to data from the National Energy Administration, from January to September 2024, the total amount of power grid project investment was 398.2 billion yuan, an increase of 21.1% over the previous year. The growth rate exceeded double digits for seven consecutive months. It is estimated that grid investment in 2024 will be close to 600 billion yuan. As of November 2024, UHV and power transmission and transformation have completed 5 of these batches of tenders, including a total of 17.929 billion yuan for UHV equipment, a year-on-year decrease of 39.5%. The first five batches of tenders for power transmission and transformation equipment totaled 65.82 billion yuan, an increase of 11.6% over the previous year. The total number of tenders for transmission, transformation and UHV equipment decreased slightly by 5.5%. In the fifth UHV equipment tender, the company continuously won bids for 1000 kV and 750 kV GIS equipment, establishing the company's leading position.

Profit forecast and investment advice: Based on the company's 2023 order and 2024 power grid investment situation, we maintain the profit forecast; the company's operating income for 2024-2026 is 13.15/15.46/17.99 billion yuan, respectively, and the corresponding net profit to mother is 1.174/1.409/1.666 billion yuan. Beta was lowered from 1.6 to 0.95, and the target price was raised from 20.10 yuan/share to 25.76 yuan/share according to the DCF model, maintaining the “better than market” rating.

Risk warning: 1. Approval and commencement of UHV lines fell short of expectations; 2. Gross margin dropped sharply due to fierce market competition; 3. Prices of raw materials rose sharply; 4. Exchange rate risk.