The comprehensive layout of wind and solar hydrogen storage is under pressure in the short term. The company started with wind power converters, specializes in new energy and electric transmission products, and operates throughout Asia/Europe/Africa/South America/North America. 2024Q1-3 achieved revenue of 2.31 billion yuan, -11.6% year on year, net profit of 0.25 billion yuan year on year, -36.9% after deducting non-net profit of 0.26 billion yuan, or -17.7% year on year; of these, 24Q3 achieved operating income of 0.93 billion yuan, -13.4% year on year, net profit of 0.1 billion yuan year on year, minus 0.1 billion yuan year on year, net profit of 0.1 billion yuan year on year, and short-term performance pressure.

The profitability of new energy electronic control has improved, and the share of overseas business has increased quarterly. 1) By product, the 24Q1-3 new energy electronic control business achieved revenue of 1.802 billion yuan, -13.41% year-on-year, gross profit margin of 34.34%, and a year-on-year increase of +2.84pct, with a significant improvement in profitability. The engineering transmission business achieved revenue of 0.316 billion yuan, -6.34% year over year, gross profit margin of 41.30%, and -3.61 pct year over year, probably due to the pace of project delivery.

2) By region, 24Q1-3's domestic revenue was 2.104 billion yuan, -14.97%, gross margin was 35.62%, year-on-year, +2.56pct, overseas revenue 0.172 billion yuan, +69.80% year-on-year, gross profit margin 51.08% year-on-year, and +3.89pct year-on-year. Among them, the share of overseas revenue in Q3 increased to 8.2% (6.7% for 24Q1 and 7.0% for 24Q2). Currently, the company has provided various services in the Netherlands, Brazil, South Korea, Turkey, Vietnam, and Pakistan Service points have been set up at the base, and the share of overseas business is expected to continue to increase.

Hydrogen energy has been expanded and successfully applied at home and abroad. The company has 500kW~20MW high-power hydrogen power supply products, which can be selected from various types such as air cooling/water cooling, indoor/containerized, and primary topology/secondary topologies to support integrated solutions for intelligent management of new energy hydrogen production. The company's products have been successfully used in many electrolyzed water hydrogen production projects in Yumen, Gansu, Qujing, Yunnan, Yulin, Shaanxi, Ningdong, Ningxia, and Australia.

Expenses were controlled during the period, and cash flow improved year over year. The company's expenses for the 24Q1-3 period were 0.58 billion yuan, +6.1% year on year, +4.2pct year on year, of which the 24Q3 period cost 0.2 billion yuan, -7.7%/-1.0% year on month, period expense ratio 22.0%, +1.4/-2.8pct year on month; 24Q1-3 net operating cash flow -0.04 billion yuan, -39.2% year on year, of which Q3 operating cash flow was 0.06 billion yuan, year-on-month- 138.3%/-74.5%; inventory at the end of 24Q3 was 1.04 billion yuan, +5.2% compared to the end of Q2.

Profit forecast and investment rating: Considering the pressure on the company's new energy orders, we lowered the company's 24-25 net profit to 0.458/0.564 billion yuan (original value was 6.29/0.803 billion yuan). The net profit for the year 26 is 0.672 billion yuan, -9%/+23%/+19% year-on-year, corresponding to current PE prices of 19x, 15x, and 13x. Considering the vast downstream hydrogen storage market and continuous breakthroughs in overseas markets, we maintained a “buy” rating.

Risk warning: downstream installed demand falls short of expectations, risk of price competition exceeding expectations, risk of relatively concentrated downstream customers