There is still room for improvement in steel pipe production and sales in 23-25, maintaining the “increase in holdings” rating

According to the company's annual report, the company achieved revenue of 6.22 billion yuan (yoy +47.2%) in '22; return mother's net profit was 470 million yuan (yoy +246.8%), higher than our previous forecast of 330 million yuan (2022.3.17), mainly due to the release of PQF production line capacity in '22, product structure optimization, and exchange earnings exceeding expectations. Considering the rise in production capacity of the company's PQF production line and the commencement of production of 50,000 tons of new energy precision tubes, we raised the 23-25 sales assumption to 85/95/103 million tons (65/70/10,000 tons). We expect EPS for 23-25 to be 0.50/0.62/0.67 yuan (previous value of 0.47/0.53/-yuan, after dilution). Comparable to the company's PE (2023E) average value of 11.2X, considering the company's energy pipe technology strength, give the company 13.5X in 23, corresponding target price 6.70 yuan (previous value: 6.70 yuan) 4.68 yuan), maintaining the “increase in holdings” rating.

PQF production line releases production capacity+new new energy vehicle pipe production line, production and sales still have room to increase in 23-25

The company has returned to the main energy pipe business, and the steel pipe business accounted for 100% of revenue in '22. The production capacity of the company's PQF production line was released smoothly in '22, seizing the opportunity of recovery in industry demand, and steel pipe production/sales reached 742/70,400 tons (YOY +39.9%/39.6%). Furthermore, according to the company announcement (2023.3.21), the company plans to invest 520 million yuan to build a precision tube project for new energy vehicles, with a planned production capacity of 50,000 tons/year. The construction period is 18 months. The products mainly include high-pressure oil pipes, stabilizer bars, camshafts, drive shafts, ball cage holders, motor shafts and other precision tubes. As PQF production line production capacity continues to be released and precision tubes for new energy vehicles are put into operation, it is expected that the company's steel pipe production and sales will still have a lot of room to increase in 23-25.

Product structure optimization, gross margin increased significantly

The company's overall gross margin increased significantly by 6.5 pct to 15.0% in '22. On the one hand, the gross margin of the company's export products is higher than that of domestic sales products. The gross profit margin of domestic/export products in '22 was 10%/21%, and the gross margin of oil casings was higher than that of boiler tubes. In the same year, the gross profit margin of oil casing/boiler pipes was 19%/13%. Benefiting from the recovery in demand in the foreign trade oil bushing market, etc., the share of the company's export products and oil casings revenue increased dramatically. Among them, export products accounted for 45.6% (yoy+18.4pct), and oil casings accounted for 59.4% (yoy+16.8pct), effectively increasing gross profit margins. On the other hand, the decline in the company's raw material costs in '22 and the recovery in demand for oil and gas pipe+coal-fired boiler tubes also increased gross profit margins. The fee rate fell to 4.2% (yoy-2.9pct) during the company in '22 (yoy-2.9pct), mainly due to the sharp increase in exchange earnings, and the financial expense ratio dropped significantly by 1.7 pct to -1.8%.

Demand for oil and gas pipes is expected to stabilize, and demand for coal-electric boiler pipes is expected to maintain a high boom

On the oil and gas side, considering that oil prices are relatively high in history and that the country attaches importance to the safety of energy supply, we believe that demand for oil and gas piping is expected to stabilize. In terms of thermal power, the Deputy Director of the National Energy Administration explained at the National Coal and Power “Three Reforms Linkage” Linkage Case and Technology Promotion Conference that the ultra-low emission transformation of coal power during the “14th Five-Year Plan” period is expected to drive an effective investment of about 100 billion yuan; the NDRC proposed at the coal insurance and supply conference that the target of starting coal power projects in 22/23 is 80 million kilowatts/year. We believe demand for coal power boiler tubes is expected to remain high.

Risk warning: Macroeconomics fell short of expectations, downstream demand fell short of expectations, and industry policies changed.