Core Viewpoint - Hezhong Electric (603063) reported strong financial performance for the first half of 2025, with significant increases in revenue and net profit compared to the previous year, indicating robust growth in the new energy control business [1][9]. Financial Performance Summary - Total revenue for the first half of 2025 reached 1.884 billion yuan, a year-on-year increase of 36.39% [1]. - Net profit attributable to shareholders was 243 million yuan, up 56.79% year-on-year [1]. - In Q2 2025, total revenue was 1.111 billion yuan, reflecting a 33.33% increase year-on-year, while net profit for the quarter was 137 million yuan, a 38.11% increase [1]. - Gross margin was 36.66%, down 4.91% year-on-year, while net margin improved to 13.11%, up 5.21% [1]. - Total receivables amounted to 2.349 billion yuan, representing a 25.52% increase year-on-year, with receivables accounting for 533.22% of net profit [1][10]. Cost and Expense Analysis - Operating costs increased by 40.59%, driven by revenue growth [9]. - Sales expenses rose by 21.94% due to expanded sales activities [9]. - Management expenses increased by 1.35% as a result of business expansion [9]. - Financial expenses surged by 65.05% due to increased borrowing and interest costs [9]. - Research and development expenses grew by 2.54% as the company increased its investment in R&D [9]. Cash Flow and Investment Activities - Net cash flow from operating activities decreased by 79.85%, attributed to higher cash payments for goods and services [9]. - Net cash flow from investing activities increased by 79.53%, due to reduced cash outflows for investments [9]. - Net cash flow from financing activities rose by 150.58%, driven by increased cash from investments [9]. Fund Holdings and Market Performance - The largest fund holding Hezhong Electric is Guotai Valuation LOF, which increased its position to 5.6511 million shares [11]. - The fund's recent performance shows a 60.17% increase over the past year [12].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 41.20 RMB [8][9]. Core Insights - The company reported a significant increase in net profit for Q4, exceeding consensus expectations by 27%, primarily due to a rebound in its new energy control business [1]. - The company has a comprehensive layout in the wind-solar-storage hydrogen business, with rapid growth in its engineering transmission business and successful overseas expansion [1][4]. - The overall gross margin has steadily improved, driven by the growth in the engineering transmission segment and the recovery of the new energy sector [3][5]. Summary by Sections Financial Performance - In 2024, the company achieved a total revenue of 3.733 billion RMB, a slight decrease of 0.5% year-on-year, and a net profit of 440.58 million RMB, down 12.3% year-on-year. However, Q4 revenue reached 1.422 billion RMB, with a quarter-on-quarter increase of 25.1% and a year-on-year increase of 52.9% [1]. - The new energy control business faced challenges in 2024, with annual revenue of 2.86 billion RMB, down 4.79% year-on-year, but Q4 showed a recovery with revenue of 1.06 billion RMB, up 15% year-on-year [2]. - The engineering transmission business grew by 16.75% year-on-year, achieving revenue of 562 million RMB in 2024, contributing to an overall gross margin increase to 37.9% [3]. Business Segments - The overseas business saw remarkable growth, with revenue of 260 million RMB in 2024, up 122.74% year-on-year, and a gross margin of 54.2% [4]. - The company’s engineering transmission segment is expected to continue its rapid growth, with anticipated revenue growth exceeding the average for 2024 [3]. Profitability and Valuation - The report projects net profit for 2025 to be 642.36 million RMB, reflecting a 45.8% increase year-on-year, with an upward revision of profit forecasts for 2025-2027 [5]. - The company is assigned a PE ratio of 29 times for 2025, up from a previous estimate of 18 times, indicating a strong market position in the new energy inverter sector [5].