TGOOD ELECTRIC(300001)：PREANNOUNCED 1H24 EARNINGS SLIGHTLY BEAT THANKS TO E-HOUSE SUBSTATION AND CHARGING BUSINESSES

　　Preannounced 1Q24 earnings up 90-120% YoY
　　TGOOD Electric preannounced that in 1H24, net profit attributable to shareholders grew 90-120% YoY to Rmb179-207mn and recurring net profit increased by 128.5-176.7% YoY to Rmb134-162mn. Preannounced 1H24 earnings slightly beat our expectation.
　　Trends to watch Sales volume and prices of the e-house substation business both increased; losses incurred by the charging business kept declining.
　　We attribute the higher-than-expected preannounced earnings to the following factors.
　　Smart manufacturing and system integration business: We think
　　revenue from e-house substations increased steadily in 1H24, as power grid investments and the installed capacity of renewable energy projects kept increasing. Furthermore, we think the net margin of e-house substations rose steadily thanks to improved order quality and economies of scale.
　　Charging business: In 1H24, the company's charging volume increased by 41% YoY to 5.8TWh. The power of new chargers rose 29.7% YoY to 2.4GW in 5M24. We think the revenue of the charging business increased rapidly and losses incurred by the charging business declined YoY in 1H24. In particular, we think the business turned profitable and generated moderate earnings in 2Q24.
　　Losses incurred by the charging business declined, as: 1) Expense ratios of subsidiary TELD declined thanks to the larger size of the charging business and lower financial expenses; 2) the growth of the charger sales business and increased government subsidies boosted profit growth; and 3) competition in the charger operation market subsided and charging service fees remained stable in 1H24.
　　Competitive landscape of the charger operation market improved;
　　service fees may increase. Charging service fees have stabilized since 2H23, as some charger operators reduced the subsidies for car owners and some companies exited the market. We note that charging service　　fees have risen in some regions, as demand for charging services from private cars has increased and these users are less sensitive to service fees than owners of ride-hailing cars and other commercial vehicles.
　　Looking ahead, we think service fees may increase and earnings of the charger operation business may improve, as efficiency in energy replenishment may increase amid the accelerated construction of liquid- cooling supercharging facilities and the competitive landscape of the charger operation market may keep improving.
　　E-house substation business: Domestic advantages continue to improve; efforts to expand overseas help the company create new
　　growth engines. TGOOD Electric's prefabricated modular substation solutions leverage prefabrication in primary substation equipment, secondary substation equipment, and construction projects to reduce the workload of construction projects and improve the efficiency in construction. The value of its bid-winning products in the railway, power grid, and renewable energy-based electricity generation industries exceeds those of many peer companies in China.
　　The company continues to improve the customer structure and reduce expenses ratios. As a result, its advantages in the domestic e-house substation market continue to improve. In addition, TGOOD Electric keeps expanding overseas. It focuses on Eastern Europe, Southeast Asia, and Russian-speaking markets to boost its long-term growth.
　　Financials and valuation
　　As earnings growth accelerates thanks to the increased revenue of the e- house substation business, we lift our 2024 and 2025 net profit forecasts 6.3% and 13.6% to Rmb724mn and Rmb973mn. Overall, we use the SOTP valuation method for 2024. We assign a DCF-based valuation of Rmb19.21bn to the new energy vehicle (NEV) charging business and Rmb7.93bn (15x 2024e P/E) to the traditional power equipment business.
　　We maintain an OUTPERFORM rating and lift our target price 7.5% to Rmb25.70, offering 32.2% upside.
　　Risks
　　Economic downturn; lower-than-expected NEV ownership in China; slower-than-expected ramp-up of charging utilization rate.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。