Matters:

The company released three quarterly reports. In the first three quarters, revenue was 2.095 billion yuan, yoy +20.91%; net profit to mother was 0.271 billion yuan, yoy -0.93%; after deducting non-net profit of 0.26 billion yuan, yoy +0.32%. Among them, 24Q3 revenue was 0.664 billion yuan, yoy +5.32%, qoq -20.11%; net profit to mother was 0.089 billion yuan, yoy -2.80%, qoq -22.64%; deducted non-net profit 0.086 billion yuan, yoy -2.47%, and qoq -24.09%. Single Q3 gross profit margin 41.46%, +1.87pcts month-on-month; net profit margin 13.26%, -0.39pcts month-on-month.

Due to various factors, results for the first three quarters fell short of expectations, and there was no increase in revenue and profit. According to the investor exchange minutes disclosed by the company on October 31, 24, the company's four business segments were as follows: industrial power supplies achieved sales revenue of 0.402 billion yuan, up 8.93% year on year; new energy power conversion equipment achieved sales revenue of 0.619 billion yuan, up 6.84% year on year; electric vehicle charging equipment achieved sales revenue of 0.859 billion yuan, up 45% year on year; battery testing and conversion equipment achieved sales revenue of 0.185 billion yuan. The year-on-year increase was 1.9%. Compared with the data disclosed in the semi-annual report, the two high-growth businesses of new energy power conversion equipment (energy storage), declined significantly year-on-year in the third quarter, and charging piles continued to grow at a high rate. We expect the decline in the energy storage business, on the one hand, to intensify domestic energy storage competition, compounded by weak repayments for some energy storage projects, which led to the company phased out some energy storage orders with low gross margins in the third quarter; on the other hand, overseas demand was affected by high interest rates, and demand contracted in stages, leading to a decline in the company's high gross margin overseas energy storage revenue growth rate. The decline in the growth rate of overseas energy storage revenue is expected to be the main reason for the decline in the company's gross margin of energy storage in the first two quarters (down 5.63 pcts from last year's gross margin). The contraction of the domestic energy storage business, which had low gross profit in the third quarter, is the main reason for the quarterly increase in the company's overall gross margin (gross margin increased 1.87 pcts month-on-month in the third quarter). In addition to business, the company's expenses have also increased to a certain extent this year, mainly due to a decrease in exchange earnings, a year-on-year increase in financial expenses, and the current production capacity of the Suzhou plant is still climbing, leading to an increase in management expenses and depreciation of fixed assets.

Overseas deployment was accelerated in the third quarter, energy storage expanded overseas storage, and charging piles expanded the European and American markets. In terms of energy storage, the company's current overseas energy storage market is mainly concentrated in Europe and the US. The type is mainly industrial and commercial energy storage (post-table market), and the company has relatively little experience in overseas large-scale storage (front-table market) projects. After overseas interest rate cuts, demand for industrial and commercial storage is expected to recover. Combined with the increase in shipments of large storage PCS products, the company's energy storage is expected to see both an increase in growth rate and gross margin next year. In terms of charging stations, according to the company's official account, the company has reached strategic cooperation with some US customers. Following the rise in demand for overseas charging piles, the company is expected to further enjoy industry dividends with its first-mover advantage.

Investment suggestions: The company's traditional business (industrial power supplies, battery testing equipment) is growing steadily, and the growth business has plenty of room for energy storage and charging piles. Due to industry reasons (falling overseas demand and increased domestic competition), the company's performance for the first three quarters of this year fell short of expectations. Currently, the company is increasing overseas investment. Although it cannot contribute to current profits, it lays the foundation for future performance growth. In summary, we lowered our previous profit forecast, but we are still optimistic about the company's long-term development. The company's net profit for 2024-2026 is 0.428/0.537/0.653 billion yuan, respectively (the value of 0.539/0.68 billion yuan before 24/25), and the current market value corresponding to PE is 19/15/12 times, respectively. Referring to comparable company valuations, since the company accounts for a relatively high share of US revenue, the market is concerned about the risk of trade friction. Considering a certain valuation discount, the company will be given 20x PE in 2025, corresponding to a target price of 34.6 yuan, maintaining a “strong push” rating.

Risk warning: Accounts receivable repayment risk. Overseas progress falls short of expectations, energy storage development falls short of expectations.