Individual stocks in the power equipment sector are currently experiencing a surge in market demand as well as institutional research interest.

Gold Pan Technology (688676.SH), a Hainan-based stock, recently released its semi-annual report. The company subsequently disclosed that its performance briefing attracted research from 104 institutions.

The announcement showed that in the first half of 2024, the company's operating income was 2.916 billion yuan, a year-on-year increase of 0.79%, and the net profit attributable to the shareholders of the listed company was 222 million yuan, a year-on-year increase of 16.43%. The gross margin on sales was 23.36%, an increase of 1.60 percentage points from the same period last year.

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In the second quarter, the net profit attributable to the shareholders of the listed company was 128 million yuan, a year-on-year increase of 23.02%; the net profit margin attributable to the parent company was 7.93%, an increase of 1.42 percentage points from the same period last year.

Additionally, the financial report indicates that as of the end of June 2024, the company had orders on hand totaling 6.562 billion yuan (excluding tax), a year-on-year increase of 29.88%, which is even comparable to its total revenue for the entire previous year.

Domestic and international business performance diverges

Looking at the structure of the orders on hand, the domestic orders on hand were 3.713 billion yuan, a year-on-year decrease of 7.98%; while the export orders on hand were 2.849 billion yuan, a year-on-year increase of 180.16%.

In fact, the structural change in the company's orders on hand is closely related to the current market supply and demand relationship in the power equipment sector, and the intensity of market competition is also reflected in the operating performance of the first half of the year.

During the reporting period, there was a significant divergence in the company's domestic and international business, with export sales revenue of 791 million yuan, a year-on-year increase of 48.53%; while domestic sales revenue was 2.11 billion yuan, a year-on-year decrease of 10.02%.

As a global equipment power supplier, Gold Pan Technology's main business includes the research and development, production, and sales of transformer series, complete sets series, and energy storage series.In the process of global energy transition, investment in power grids generally lags behind investment in power sources. The large-scale integration of new energy projects poses higher demands on the grid's peak-shaving capabilities and also significantly increases the demand for transformers. Moreover, due to earlier electrification, some infrastructure in developed economies has been in operation for 50 years or more. The modernization and upgrading of aging grid facilities are imminent.

Thanks to the increasing demand for transformers overseas, Chinese companies producing transformers are actively going abroad in search of new markets.

According to a research report by Zheshang Securities, China's transformer exports are entering a period of accelerated growth, with the export scale reaching 37.3 billion yuan in 2023, an increase of 27% year-on-year. The market potential in the United States, Europe, and Latin America is enormous.

As a leading domestic supplier of dry-type transformers, facing the strong market demand, Goldpan Technology has encountered insufficient production capacity and has accelerated its expansion plans. The management stated during the performance briefing that night that the company is preparing for the expansion of full-line product capacity in Mexico and the United States, and expects to have capacity ready in Poland by the fourth quarter of this year.

However, the company's domestic sales revenue has been affected by the slowdown in domestic new energy demand growth and intense industry competition, with the financial report mentioning, "This is mainly due to a year-on-year decrease of 19.29% in the company's domestic new energy sales revenue."

Gao Gong Industry Research Institute (GGII) points out that in the first half of 2024, due to the release of supply-side capacity, there was a significant increase in production across all segments, and the prices of photovoltaic main materials continued to decline. The persistent low prices have brought considerable survival pressure on enterprises.

The industry competition is fierce, and the prices of products at various stages of the photovoltaic industry chain are "falling incessantly," affecting related businesses such as photovoltaic power equipment and energy storage series products.

In addition, on the other hand, the continuous fluctuation of the prices of production materials has also impacted the company's operating performance, with transformers being the first to be affected. The main raw materials for power equipment such as transformers are electromagnetic wires, silicon steel, and general metal materials, with direct material costs accounting for more than 80% of the main business proportion.

Wind data shows that in the first half of 2024, the Shanghai copper futures price set a historical record high, reaching around 890,000 yuan/tonne. The copper price continued to fluctuate throughout the first half of the year. The company's financial report points out, "Fluctuations in the prices of production materials will to some extent affect the company's operating performance, and at the same time, more intense market competition may have an adverse impact on the company's profits."

Cash flow improvement, data assets on the balance sheet.In terms of finance, the company stated that during the reporting period, with the continuous increase in the proportion of high-quality customers and orders, and the strengthening of accounts receivable recovery efforts, the net cash flow from operating activities improved by 218 million yuan compared to the same period last year.

It is worth mentioning that starting this year, the company has carried out the work of including data assets in the financial statements in accordance with the relevant regulations of the Ministry of Finance.

In accordance with relevant regulations, the company has included newly developed new energy centralized control data assets and virtual power plant data assets in the financial statements, and the related R&D investments have been capitalized. These assets have undergone strict data quality evaluation, compliance review, and scientific value assessment, with the assessed value of the data assets exceeding 300 million yuan.

However, the semi-annual report also foreshadows several financial risks that the company is currently facing.

At the end of the reporting period, the balance of construction in progress was 131 million yuan, and additionally, the original value of fixed assets increased by 75.02 million yuan during this reporting period, which will lead to an increase in the original value of fixed assets and annual depreciation in the future.

"If the company fails to develop the market effectively in the future and cannot achieve sales growth that matches the scale of the increased depreciation, then the company faces the risk of profit decline due to the large scale of increased fixed asset depreciation," Jinpan Technology stated.

The company also faces the risk of a large balance of accounts receivable. During the reporting period, the balance of accounts receivable showed an upward trend, with the balance at the end of the reporting period being 3,082 million yuan, an increase of 7.55% compared to the end of the previous year.

"If there are significant adverse changes in the future economic environment and industrial policies, and some customers' operating conditions change significantly, the company will face the risk of not being able to collect or not being able to collect its accounts receivable on time, which will have an adverse impact on the net cash flow from operating activities of the company," the listed company stated.

In addition, the semi-annual report also mentioned that the company is also facing financial risks such as a large balance of goods issued, tax incentive policies, as well as risks from industry and global economic macro activities.