Core views

The company released its report for the third quarter of 2024. Net profit to mother increased by 21.91% year-on-year in the first three quarters of 2024. The performance remained positive, and the increase in domestic and international business resonated. Gross margin increased by 2.59 pct in the first three quarters to 36.21%, increasing profitability. In terms of overseas business, the company's overseas electricity business has an in-depth layout, and electricity distribution continues to make breakthroughs; in the context of intelligent global power grids, the overseas electricity distribution market space is vast, and smart meter companies are going overseas at the right time to distribute electricity. In terms of domestic business, in 2024, the domestic electricity meter bidding scale was high, and the industry was booming. Distribution business companies continued to dig deeper into the needs of major customers. Thanks to the high popularity of power equipment, the company will fully benefit from the increasing resonance of domestic and international business.

occurrences

The company released its report for the third quarter of 2024. In the first three quarters of 2024, it achieved operating income of 10.434 billion yuan, a year-on-year increase of 25.14%; net profit to mother was 1.816 billion yuan, an increase of 21.91% year on year; net profit after deducting non-return to mother was 1.748 billion yuan, an increase of 31.32% year on year.

Brief review

2024Q3 Company's performance continues to rise

1) Net profit attributable to mothers/ net profit net profit after deduction for the first three quarters of 2024 was 18.16/ 1.748 billion yuan respectively, an increase of 21.91%/31.32% year-on-year, and the results remained upward.

2) In the third quarter, revenue of 3.436 billion yuan was achieved, up 23.21% year on year; net profit to mother was 0.666 billion yuan, up 7.43% year on year. Net profit after deducting non-return to mother was 0.67 billion yuan, a year-on-year increase of 30.03%.

3) Increased profitability: In the first three quarters of 2024, the company's gross margin reached 36.21%, an increase of 2.59 pct year on year; 2024Q3 gross margin was 39.48%, up 0.89pct year on year. Through continuous technological innovation, internal cost reduction and efficiency, the share of rehabilitation services in the medical sector has increased, and the overall gross margin has increased year-on-year.

The two main businesses are growing in parallel, orders continue to be strong, and overseas power distribution continues to break through 1) Intelligent electricity distribution business: revenue increased by 26.54% in the first three quarters; expected:

① Domestic power grids lead the industry in winning bid amounts; ② Off-grid industry platform customers continue to develop; ③ Overseas electricity business has increased its efforts to promote system solution projects, and the share of overseas base production capacity has increased to about 50%. ④ After breaking through the Middle East market for the first time in 2023, the overseas power distribution business obtained the first orders in Europe and America this year.

2) Medical service business: Revenue increased by 21.73%, which is expected to benefit mainly from: ① the continued increase in the overall operation and management of hospitals; ② the simultaneous increase in the number of rehabilitation hospitals and single store operations.

3) By the end of the third quarter, the company had accumulated orders of 15.62 billion yuan, an increase of 35.18% over the previous year. The cumulative number of in-hand orders in China was 9.374 billion yuan, an increase of 35.10% over the previous year; the cumulative number of orders in hand overseas was 6.246 billion yuan, an increase of 35.30% over the previous year. Among them, overseas power distribution business orders reached 0.962 billion yuan, a year-on-year increase of 272.51%, and the business achieved a rapid breakthrough.

The popularity of power equipment is high, and there is incremental resonance at home and abroad

1) Overseas: ① It's time for leading domestic meter companies to go overseas. According to the IEA research report, smart grid investment will need to nearly double by 2030, while the penetration rate of smart meters in many developing countries, such as South America and Africa, is expected to be less than 10%. Smart meters in Southeast Asia are still in their infancy, and the market space for smart meters is vast. ② The cumulative export value of electric energy meters from January to September 2024 exceeded 8 billion yuan, an increase of more than 10% over the previous year. In the context of the intelligent global power grid, total electricity meter exports showed an overall upward trend.

2) Domestic: Grid investment is expected to exceed 600 billion yuan in 2024, an increase of 71.1 billion yuan over the previous year, with a year-on-year growth rate of more than 10%; industry prosperity continues to be strong. ① According to the State Grid bidding plan, a batch of additional tender batches for electric energy meters will be added in 2024; in 2024, the total number of tenders for electric energy meters and terminal equipment was about 95 million, an increase of about 25% over the previous year. ② Since 2024, policies related to distribution network development have been introduced continuously. It is expected that the amount of distribution network investment will increase, and distribution network construction will be accelerated.

3) As can be seen from this, we expect demand for electric energy meters and distribution network products to continue to improve in 2024, driven by factors such as increased investment in power grids throughout the year, the gradual increase in demand for metering products, and the promotion of distribution network construction.

The medical business has a high degree of maturity, bringing stable gains

1) The company continues to consolidate the rehabilitation medical chain services, and the medical business is expected to grow steadily. The company's healthcare business revenue increased 21.73% in the first three quarters of 2024. According to public data, 2024H1's medical service sector revenue was 1.613 billion yuan, up 26.53% year on year, of which rehabilitation medical revenue was 0.814 billion yuan, up 36.54% year on year, and comprehensive and other medical revenue was 0.798 billion yuan, up 17.71% year on year. In the first half of the year, the company added 6 rehabilitation hospitals. As of 2024H1, there were 34 hospitals under the company, including 28 rehabilitation hospitals, with a total number of beds exceeding 10,000.

2) Looking ahead to the whole year, the company is expected to continue to expand the rehabilitation hospital landscape based on its rich hospital chain management experience and talent training and external recruitment system. As the new hospital's revenue climbs and profit margins increase, the medical sector business is expected to achieve steady growth.

Performance forecasts

The company's net profit for 2024/2025 is estimated to be 2.34/2.96 billion yuan, PE 19.2/15.1x.

Risk analysis

1) Demand side: Changes in national infrastructure policies have led to power investment falling short of expectations; power grid investment falls short of expectations; demand for power equipment has declined due to a decline in the growth rate of installed new energy installations; the growth rate of electricity consumption in the whole society has declined; the bidding progress of the two networks falls short of expectations; the progress of UHV construction falls short of expectations.

2) Supply side: Prices of commodities such as copper resources and steel have risen; the supply of power and electronic devices is tight, and the progress of localization falls short of expectations.

3) Policy aspects: Support related to the new electricity market falls short of expectations; the progress of the electricity price mechanism is lower than expected; the progress of the electricity spot market falls short of expectations; and the difference between peak and valley prices of electricity falls short of expectations.

4) In terms of the international situation: the energy crisis has been mitigated more quickly, energy prices have fallen faster; barriers to international trade have deepened.

5) Market side: The competitive landscape has changed drastically; increased competition has caused the profitability of all aspects of power equipment to fall short of expectations; transportation and other costs have risen.

6) Technical aspects: The progress of technical cost reduction is lower than expected; technical reliability is difficult to further improve.