The leading private sector in power equipment has clearly passed through the cycle

Starting with lightning arrester monitors, the company gradually expanded to primary and secondary equipment, EPC and other businesses, and grew into a leading private power equipment company. The compound revenue growth rate in the past five years has exceeded 20%, showing strong alpha attributes. As the company continues to build a platform ecosystem on the product side and accelerate its journey to overseas regions on the market side, we believe that the company can take advantage of the upward trend in global power grid investment and maintain rapid growth. We expect the company's 24-26 EPS to be 2.61/3.35/4.13 yuan. As of July 11, the average PE value for 24 years is 27 times that of the company. The company is the leading private network equipment, adopts a platform-based layout strategy, and the domestic and foreign markets are working together to give 30 times PE and a target price of 78.30 yuan. The first coverage gave it a “buy” rating.

Taking advantage of grid investment, domestic and overseas businesses are making concerted efforts

Under the steady growth and demand regulation of new energy+, the total investment scale of China's power grid is expected to grow steadily. We believe that the growth rate of grid infrastructure investment is expected to reach more than 10% in '24. The company's share of winning bids for power transmission and transformation equipment from the State Grid is stable, ranking at the top of the industry; at the same time, the layout of categories such as transformers and secondary equipment is beginning to bear fruit, and the share is expected to increase further in the future. Investment in overseas power grids is expected to accelerate, demand for power equipment will spill over, and domestic exports of products such as transformers will increase. The company's overseas business has two models: direct equipment sales and EPC. Currently, it has entered a stage of rapid growth, and the company mainly focuses on high-voltage grade products, and the offshore logic is more sustainable. New overseas orders reached 4.01 billion yuan in '23, an increase of 34% over the previous year. We believe that the growth rate of overseas orders is expected to increase further in '24.

Platform-based layout and integrated operation, with remarkable technical and management advantages

We believe that the main reasons why the company can grow into a leading private power equipment enterprise are three: 1) platform-based layout: the company uses a platform-based strategy to expand its size; horizontally expand its industrial layout and diversify its business; vertically conquer products with different voltage levels, establish technical barriers, and expand potential market space.

The platform-based development strategy injects a source of continuous growth into the company; integrated management helps the sharing and collaborative development of multiple business platforms. 2) Technical advantages: Continued strong investment in R&D to create the core competitiveness of the product. R&D expenses were +36.2% year on year; R&D cost ratio was 7.36%, +0.97pct year on year. 3) Management advantages: The company is one of the few private enterprises with power grid qualifications. The management is stable and the ability to control costs and cash flow is strong; equity incentives are continuously implemented to continuously stimulate team initiative.

Emerging businesses have broad space and are expected to bring new growth points

The company actively lays out emerging businesses such as automotive electronics and energy storage. Yumi Auto has signed framework contracts with a number of OEMs. The products include auxiliary power supplies, in-vehicle safety systems, etc. As related production lines are gradually completed and put into operation, we expect that early fixed targets will gradually be converted into revenue by the end of 24. Under the trend of automobile electrification and intelligence, the business is expected to maintain rapid growth in the future. The two-line layout of the company's energy storage business at home and abroad has achieved full coverage of large storage, industrial and commercial storage, and household storage scenarios, and is also expected to bring significant revenue growth to the company in the future. The company's forward-looking business layout injects continuous growth momentum into the company in the future.

Risk warning: Grid investment falls short of expectations, competition intensifies, new business development falls short of expectations, and raw material prices rise.