Event summary: On March 21, the company released its 2022 annual report: in 2022, the company achieved revenue of 6.223 billion yuan, an increase of 47.25% over the previous year; net profit of the mother was 471 million yuan, an increase of 246.78% over the previous year; net profit of the non-return mother was 499 million yuan, an increase of 1007.77% over the previous year. 2022Q4, the company achieved revenue of 1,734 million yuan, an increase of 34.5% over the previous year and a decrease of 0.45%; the net profit of the mother was 125 million yuan, an increase of 255.34% over the previous year, a decrease of 25.06% over the previous year; after deducting net profit of 127 million yuan, an increase of 417.41% over the previous year and a decrease of 14.15% from the previous month.

Comment: Production and sales increased sharply, and gross margin increased year-on-year

① Volume: Production and sales increased significantly year-on-year in 2022. Since the company's world-leading PQF production line was put into operation in 2021, it has greatly increased the company's pipe production capacity. Combined with the increase in foreign trade market demand in the oil and gas industry, demand for coal-electric boilers has picked up. In 2022, the company's seamless pipe production reached 742,000 tons, an increase of 39.93% over the previous year; seamless pipe sales reached 704,500 tons, an increase of 39.57% over the previous year, and the company's production and sales scale reached a record high.

② Price: Gross margin increased year over year in 2022. The price of seamless steel pipes fell 5.64% year on year in 2022, while the price of raw material billets fell 12.76% year on year, raw material costs were reduced even more, and product profit margins increased. Among them, the gross margins of oil casings and boiler tubes were 19.23% (+11.74 pct year on year) and 13.04% (+2.40pct year on year), respectively, and the company's higher gross margin oil bushings accounted for a sharp increase in revenue in 2022, causing the company's gross margin to increase 6.40 pct to 14.98% year on year. The gross margin of 2022Q4 was 19.79%, an increase of 4.73 pct over the previous month and an increase of 8.55 pct over the previous year.

Core future highlights: advanced production capacity continues to be released, new pipeline production lines for new energy vehicles ① Demand in the oil and gas sector is picking up, and thermal power boiler tubes are booming. There was an increase in global oil demand in 2023, which is expected to support demand for oil and gas pipes. The National Development and Reform Commission proposed at a coal insurance and supply conference that in 2022-2023, 165 million kilowatts of new thermal power will be started, and 80 million kilowatts will be approved every year. Coal and power construction is expected to drive up the production and sales of thermal power boilers.

② The company's advanced production capacity continues to be released. The company returned to the main energy pipe business and achieved rapid growth in performance.

After the company's high-end PQF production line was put into operation, the company's annual pipe production capacity reached 1 million tons. Against the backdrop of good downstream demand, the company's product sales in 2022 increased significantly compared to the same period last year.

③ Build a new pipeline for new energy vehicles to create a new profit growth point. The company plans to invest in the construction of a precision pipe production line for new energy vehicles with an annual output of 50,000 tons. It is estimated that the project will reach an additional annual revenue of 525 million yuan after delivery, with a total annual profit of 63.07 million yuan. The post-tax IRR of the project is 11.65%, and the post-tax payback period is 933 years (including the construction period). Project construction helps the company lay out the NEV industry and increase the market share of the company's specialty products.

Profit forecast and investment advice: We believe that benefiting from rising demand in the oil and gas industry, the continuous release of new production capacity, and declining raw material prices, the company's steel pipe product sales and gross margin are expected to increase. The net profit returned to the mother in 2023-25 is expected to be 489/540/629 million yuan in that order. PE corresponding to the closing price on March 27 is 10x, 9x and 8x, maintaining the “recommended” rating.

Risk warning: raw material prices are rising, downstream demand falls short of expectations, and production capacity falls short of expectations.