Incident: The company released its 2022 annual report. Annual revenue was 2,526 million yuan, up 30.68% year on year; net profit attributable to shareholders of listed companies was 298 million yuan, up 67.34% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 276 million yuan, up 60.85% year on year; basic earnings per share were 0.98 yuan.

The industry boom cycle is coming, and net revenue and profit are growing rapidly. The company's net profit attributable to the mother in 202Q4 was 96 million yuan, and the quarterly net profit growth rates for 202Q1-Q4 were 15.61%, 115.01%, 79.15%, and 56.03%, respectively. Benefiting from further optimization and upgrading of silicon steel grades, the company's profit maintained a rapid growth trend; the company's 202Q4 revenue was 783 million yuan, and 2022Q1-Q4's quarterly revenue growth rate was 13.00%, 36.74%, 26.61%, 39.16%, respectively, benefiting from downstream power installations Yearly growth and the pace of power grid construction is accelerating. Revenue from transmission and distribution equipment and silicon steel continues to grow. The number of new coal power installations is expected to increase significantly in the future. Policies such as approving 80 GW each year in 2022-2023 will push the thermal power industry into a boom. In terms of wind power, in 2023-2025, the average annual installed capacity of wind power in the country was about 60 GW~70 GW, once again entering a high boom phase. The restart of downstream thermal power and the rise in new wind energy will continue to drive demand for silicon steel and transformers.

The gross profit margin of silicon steel has increased significantly, and profitability has improved across the board. The company's total revenue in 2022 was 2,526 million yuan, and net profit returned to the mother was 298 million yuan, all reaching record highs; the company's Q1-Q4 quarterly sales gross margins were 19.02%, 19.62%, 22.03%, and 20.20% respectively, showing a gradual improvement trend; Q1-Q4 quarterly expense ratios for the quarterly period were 8.27%, 5.83%, 5.49%, 5.49%, and the Q1-Q4 quarterly sales margin increased significantly from month to quarter; The gross margin of the full-year silicon steel business increased to 24.06%, an increase of 6.56 pct over 2021, a record high.

High-end projects continue to be put into operation, and it is expected that the upward trend will continue in the future. The company's 80,000-ton high-end magnetic new materials project will be partially put into operation in June 2023, and production capacity will be added by 20,000 to 30,000 tons that year; due to the long production cycle of foreign equipment, this project will be fully put into operation in June 2024. Production capacity of 5-6 million tons can be added that year, and this project will fully reach production capacity of 80,000 tons in 2025; with the release of high magnetic sensing products and the installation of imported equipment, subsequent silicon steel production and high-grade production are expected to maintain a high upward trend. At the same time, transformers, box-type substations and electrical substations in the fund-raising project are expected to maintain a high growth trend. At the same time, the fund-raising project includes transformers, box-type substations and power substations and power substations. Steady expansion of equipment production Relying on traditional business advantages to further raise the level of profitability.

Investment advice. The company's silicon steel business continues to expand, high-end product iteration has accelerated, the transmission and distribution business has steadily increased production, the restart of downstream thermal power and the rise in new wind energy continue to drive demand for high-end silicon steel and transformers. The expansion trend of the entire industry chain is expected to support higher valuations. We expect the company to achieve net profit of 390 million yuan, 530 million yuan, and 670 million yuan respectively from 2023 to 2025. The corresponding PE will be 18.8, 14.0, and 11.0 times, maintaining the “buy” rating.

Risk warning: Prices of upstream raw materials fluctuate greatly, downstream electricity demand falls short of expectations, industry space estimates may be biased, and there is uncertainty about new production lines and business development.