Dongfang Electric released its 2024 semi-annual report: 2024H1 achieved operating income of 33.457 billion yuan, a year-on-year increase of 11.84%; achieved net profit to mother of 1.691 billion yuan, a year-on-year decrease of 15.52%; and announced the 2024 “Improve Quality, Increase Efficiency, and Focus on Return” action plan.

Key points of investment

Multiple factors affect performance in the first half of the year

The company is one of the world's leading suppliers of power generation equipment and power plant engineering contractors.

2024H1 achieved operating income of 33.457 billion yuan, up 11.84% year on year; realized net profit of 1.691 billion yuan, down 15.52% year on year; gross margin was 15.36%, down 2.07 pct year on year; and net margin was 5.49%, down 1.65 pct year on year. 2024Q2 achieved operating income of 18.404 billion yuan, up 21.09% year on year and 22.26% month on month; realized net profit of 0.786 billion yuan, down 20.08% year on year and 13.25% month on month; gross margin was 12.65%, and net profit margin was 4.54%.

In the first half of the year, in the case of revenue growth, performance was under short-term pressure due to factors such as centralized delivery of low-cost coal and power projects, non-monetary asset exchange losses (loss of 0.181 billion yuan in non-monetary asset exchange was confirmed due to falling stock prices of Chuaneng Power, which reduced profit by 0.29 billion yuan over the previous year), increased R&D expenses, and exchange rate fluctuations.

Revenue from power generation equipment grew steadily, and the gross margin of coal and electricity was pressured by the short-term 2024H1 “Clean and Efficient Energy Equipment” sector revenue of 14.1 billion yuan, an increase of 41% year on year. Among them, revenue from coal electric/gas engine/nuclear power equipment was 8.5/3.6/1.9 billion yuan respectively, up 16%/154%/60% year on year, respectively. In terms of coal and electricity, in the first half of the year, the company concentrated on delivering low-price orders signed before the current round of coal and electricity approval, which led to a year-on-year decline of 2.58 pct to 16.44%, which had a great impact on performance. Looking ahead, the launch and delivery of high-price orders and continued high growth in on-hand orders will effectively enhance the sector's profitability and support the continued growth of sector revenue; in the nuclear power sector, the sector's revenue grew rapidly in the first half of the year, and the company is expected to continue to benefit after nuclear power approval is normalized.

In addition, revenue from the “renewable energy equipment” sector was 8.2 billion yuan, up 19% year on year. Among them, wind power/hydropower equipment revenue was 6.7/1.3 billion yuan, up 19%/21% year on year, and the subsidiary Dongfang Wind Power reversed losses; revenue from the “engineering and trade” sector was 3.5 billion yuan, down 42% year on year. Among them, general engineering contracting/trade revenue was 1.7/1.8 billion yuan, with a year-on-year change of 19%/-61%. The general engineering contracting business was affected by increased competition, and gross margin was significant The decline and sharp contraction of trade business also had an impact on performance; the revenue of the “Modern Manufacturing Services” sector was 3.5 billion yuan, up 46% year on year. Among them, revenue from power plant services/financial services was 2.8/0.5 billion yuan, respectively, with a year-on-year change of 85%/-8%, respectively.

Ongoing orders continue to grow, supporting future long-term development

2024H1 added effective orders of 56.073 billion yuan, an increase of 14.77% over the previous year. Among them, clean and efficient energy equipment (coal power, combustion engines, nuclear power) was 25.339 billion yuan, accounting for 45.19%; renewable energy equipment (wind power, hydropower) was 14.058 billion yuan, accounting for 25.07%; engineering and trade: 5.731 billion yuan, accounting for 10.22%; modern manufacturing services, 4.887 billion yuan, accounting for 8.70%; emerging The growing industry was 6.073 billion yuan, accounting for 10.83%. From January to July, the company added 62.783 billion yuan of effective orders, an increase of 19.2% over the previous year. Among them, the coal/hydropower/power plant service industries increased by more than 37%/102%/30% year-on-year respectively.

Pay attention to shareholder returns and increase the dividend ratio

The company has formulated a dividend policy for the period from 2021 to 2024. On the basis of 2021, the dividend ratio was increased by 5 pcts each year, of which the dividend ratio was 31.34% in 2021, 36.6% in 2022, and 41.71% in 2023, achieving long-term stable returns to shareholders.

Profit forecasting

The company's revenue for 2024-2026 is 71.834, 82.083, and 91.235 billion yuan, respectively, and EPS is 1.21, 1.52, and 1.80 yuan respectively. The current stock price corresponds to PE 10.5, 8.3, and 7.0 times, respectively. The company's business is expected to continue to benefit from China's efforts in coal power, gas power, nuclear power, savings, wind power, hydrogen energy, etc., and the first coverage, giving it a “buy” investment rating.

Risk warning

There is a risk that demand for power generation equipment falls short of expectations, risk of increased industry competition, risk of fluctuating raw material prices, risk of exchange profit and loss, and general market systemic risk.