Event Overview: The company released its 2022 annual report: In 2022, the company achieved revenue of 2,830 million yuan, an increase of 4.86% over the previous year; net profit of Guimo was 215 million yuan, an increase of 22.00% over the previous year; after deducting net profit of 177 million yuan, an increase of 18.15% over the previous year. 2022Q4, the company achieved revenue of 792 million yuan, an increase of 13.11% over the previous year and an increase of 2.81% over the previous year; the net profit of the mother was 72 million yuan, an increase of 271.30% over the previous year, an increase of 18.42% over the previous year; after deducting net profit of the non-return mother of the mother, an increase of 389.54% over the previous year, a decrease of 0.50% over the previous year.

Comment: Production and sales volume declined year-on-year, and gross margin level improved

① Volume: In 2022, the company's production and sales declined year-on-year, and the share of electric boiler revenue increased. The company produced 47,000 tons of seamless pipes in 2022, down 9.51% from the previous year, 29,600 tons of welded pipes, down 19.26% from the previous year; sold 46,200 tons of seamless pipes, down 7.23% from the previous year, and 28,800 tons of welded pipes, down 22.81% from the previous year.

Among them, the company's power industry orders increased markedly. The revenue share increased 5.5 pct to 10.95% year on year, and the gross profit share increased 4.27 pct to 7.14% year on year, which led to a marked increase in the company's contract debt.

② Price: Product price increases, and the company's gross margin improves. Despite the decline in the company's product sales under the influence of the epidemic, the average annual price of seamless pipes increased 18.26% year on year, the price of welded pipes increased 14.94% year on year, and the company increased sales of high-end products such as thermal power boiler tubes, strengthened cost control, and achieved both revenue and net profit growth. The company's gross margin increased by 0.16pct to 14.30% in 2022. On a quarterly basis, 2022Q4 gross margin increased 1.13 pct month-on-month, and increased 4.48 pct to 16.06% year on year.

Core future highlights: demand for thermal power is clearly expanding, leading high-end pipe profits are growing ① Tenders for thermal power boiler tubes continue to be sold, and supply and demand for super stainless steel pipes are tight. Experts expect to approve about 80 million kilowatts (equivalent to 80 GW) each year thereafter, which will bring in 200 million kilowatts of new installed capacity in the next three years. The upgrading of old coal power units will also further boost demand for super stainless steel seamless pipes. However, the supply barrier between S30432 and HR3C is high, making it difficult for new manufacturers to quickly enter the boiler plant supply system. Supply flexibility is limited, which is expected to support the price of thermal power boiler tubes.

③ The company actively increased production to seize market recovery opportunities. The company is one of the leading enterprises in the domestic stainless steel pipe industry, with an original production capacity of 10,000 tons of thermal power boiler tubes. The company's 20,000 ton high-end stainless steel pipe project is expected to be put into operation in May 2023, reaching a production capacity of 30,000 tons of thermal power boiler tubes after production.

④ With the general trend of localization of pipes used in ethylene crackers, the leading position in the precision tube industry has been consolidated. The company set up a joint project with a domestic petrochemical giant. It is expected that the convection section of the ethylene cracker will be localized by 2023. The company continues to forge ahead after the 3,500-ton precision pipe production line is put into operation, which will build a moat for the company's high profitability and establish a leading position in the industry.

Investment advice: Benefiting from increased demand in the thermal power boiler tube industry and the continuous release of new production capacity, we expect the company to achieve net profit of 387/5599/611 million yuan respectively in 2023-25. Corresponding to the closing price on April 6, PE was 12, 8 and 8 times, respectively, maintaining the “recommended” rating.

Risk warning: project progress falls short of expectations; risk of rising raw material prices; downstream demand falls short of expectations, etc.