Event: The company released its report for the first quarter of 2024. During the reporting period, revenue of 148 million yuan was achieved, up 93.24% year on year; net profit to mother was 6.3024 million yuan, up 500.16% year on year; non-net profit deducted from mother was 5.817,700 yuan, up 746.07% year on year. The overall results were in line with expectations.

Coal and power construction has opened up market space, and the auxiliary equipment business continues to grow. The company's traditional business includes slag removal equipment and low-temperature coal savers, which are essential auxiliary equipment for coal power. They have significantly benefited from the new expansion of coal power, and the market space is broad. In February 2024, the total amount of basic investment in thermal power was 10.6 billion yuan, +54% year-on-year; in March 2024, the country's total installed thermal power capacity was 1,397 billion kilowatts, an increase of 4.20% over the previous year. The “2024 Guiding Opinions on Energy Work” calls for strengthening the guarantee of fossil energy safety and security. Promote the integrated joint operation of coal and coal power, and rationally lay out supportive and regulated coal power. It is expected that the installed capacity of newly built coal and electricity will increase significantly in 2024. Benefiting from the demand for new coal and electricity generation releases and the pace of order confirmation, the company's revenue increased 93.24% year on year, and profit increased significantly year on year.

Full-load denitrification continues to be unleashed by the need for flexible transformation. The company has mastered the core technology of thermal power flexibility transformation. The compound revenue growth rate of the representative business reached 60.54% from 2018 to 2022. It has maintained a high growth rate, or was affected by the pace of demand release and order confirmation revenue. The business's revenue ratio was -25.24% year over year in 2023. In January 2024, the National Development and Reform Commission and the National Energy Administration's “Guiding Opinions on Strengthening Capacity Building for Peak Shifting and Energy Storage in Power Grids” proposed to carry out in-depth flexibility transformation of coal power units to achieve “thorough reform” by 2027; explore deep peak shifting of coal power units on the premise of ensuring safety in regions with a high share of new energy and insufficient peak shifting capacity, and the minimum power generation output reaches 30% of the rated load. We expect that with the shift from thermal power to regulated power sources and profit improvements, demand for flexible transformation will continue to be released, and related businesses still have potential for elastic growth.

Focus on R&D investment to create a new growth curve for emerging businesses such as steel slag and desulfurization wastewater treatment. In the first quarter of 2024, the company invested 10.665 million yuan in R&D, an increase of 30.63% over the previous year, accounting for 7.2% of revenue. In 2023, the company implemented the first order for the steel slag business, with a contract amount of 104 million yuan and confirmed revenue of 92 million yuan, indicating that the company has successfully opened up the steel slag treatment market and laid out energy-saving transformation in the non-electric industry. At the same time, the zero discharge system for desulfurization wastewater achieved revenue of 19 million yuan in 2023, +36.41% over the same period last year, and is expected to continue to be released in the future. In addition, the company is promoting technology research and manufacturing in the field of hydrogen energy equipment through the 120MW fishery and light complementary project, which is expected to create new growth space for the company.

Investment advice. The company's auxiliary engine performance maintained a relatively rapid growth rate in 2023. As a leading segment leader in coal power auxiliary equipment and thermal power flexibility transformation, it directly benefited from the opening up space for new coal power construction and thermal power flexibility transformation, and continued release of market demand supported the continuous improvement of the company's profitability. We predict that the company's net profit for 2024-2026 will be 1.50/1.90/233 million yuan respectively, corresponding EPS is 1.22/1.54/1.89 yuan, and PE is 13.7/10.9/8.8 times, respectively. The company has the core advantage of thermal power flexibility transformation and rapid growth, and maintains a “buy” rating.

Risk warning: 1. Thermal power construction falls short of expectations. 2. The electricity auxiliary services market policy falls short of expectations. 3. Demand for thermal power flexibility transformation fell short of expectations.