Incident: The company released the 2022 annual performance report and the performance forecast for the first quarter of 2023. Total operating income for 2022 was 1,207 million yuan, an increase of 7.47% over the same period last year; net profit attributable to shareholders of listed companies was 73.455 million yuan, an increase of 40.32% over the same period last year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 71,43881 million yuan, an increase of 63.87% over the same period last year; basic earnings per share were 0.73 yuan. Net profit attributable to shareholders of listed companies is expected to be about 19 million yuan to 21 million yuan in the first quarter of 2023, an increase of 45.18% to 60.46% over the previous year.

The demand boom was compounded by improvements in the product structure, and net profit continued to rise in a single quarter. The net profit attributable to the company in 202Q4 was 26 million yuan, the quarterly net profit of 2022Q1-Q4 was 11.81%, 64.96%, 66.97%, and 30.67%, respectively; the company's 202Q4 revenue was 320 million yuan, and the quarterly revenue growth rate of 2022Q1-Q4 company was 27.84%, 6.86%, -2.14%, and 4.37% respectively, benefiting from the increase in the average sales price of the company's products, the steady increase in raw material prices, and the increase in sales of stainless steel products. The company's net profit continues to increase rapidly.

Revenue and net profit returned to mothers reached record highs, and profitability improved across the board. The company's total revenue in 2022 was 1,207 million yuan, and net profit returned to the mother was 773 million yuan, all of which reached record highs; the company's Q1-Q3 quarterly sales gross margins were 14.16%, 14.01%, and 12.88% respectively, and continued to be at a high level; Q1-Q3 quarterly expense ratios for the quarterly period were 7.95%, 6.77%, 6.71%, and the share of expenses declined quarterly; Q1-Q3 quarterly net sales interest rates were 4.96%, 5.01%, 5.90%, respectively.

Net profit increased sharply in the first quarter of 2023, and the project will soon be put into production and volume. The company's median net profit forecast for the first quarter of 2023 was 0.2 billion yuan, an increase of 52.82% over the previous year; the sharp increase in performance was mainly due to improved product structure. According to preliminary estimates, the company's sales of stainless steel products in the first quarter increased by 53.03% compared to the same period last year. According to the company announcement, the new production line began operation in the first quarter of 2023 and operated at full capacity in the second quarter. The design capacity of stainless steel and alloy steel for the new production line is 50,000 tons, of which 30,000 tons are super stainless steel and 20,000 tons are T91 and T92 high-alloy steel; it is expected that the company's new production line will soon launch volume, products. The structure is expected to improve further, thereby increasing the company's gross margin level.

The company disclosed large orders, and it is expected that the approval and commencement of coal power will gradually be implemented. According to the company's announcement on March 16, the company received the “Notice of Winning the Bid” from the bidding unit, Dongfang Electric Group Dongfang Boiler Co., Ltd., which confirmed that the company was the winning bidder for “300 tons of threaded pipes in power plant service in 2022”. The winning bid amount was about 19.1501 million yuan, accounting for 17.65% of the company's audited revenue in 2021. According to the announcement of Changbao Co., Ltd., the National Development and Reform Commission will approve 80 million kilowatt coal power projects every year in 2022 and 2023; it is expected that with the increase in demand brought about by the gradual entry of pre-approved projects into the construction stage and the gradual release of production capacity for new production lines, the company's thermal power steel pipe related business is expected to experience a sharp rise in volume and price, and performance is expected to increase significantly.

Investment advice. The company focuses on seamless steel pipe manufacturing for small-caliber energy. While production capacity is expanding, downstream demand continues to improve and effectively supports its profit release, and the increase in the share of high-end products is expected to support its higher valuation. We expect the company to achieve net profit of 73 million yuan, 198 million yuan, and 338 million yuan respectively from 2022 to 2024. The corresponding PE is 53.3, 19.8, and 11.6 times, maintaining the “buy” rating.

Risk warning: Prices of upstream raw materials have fluctuated greatly, demand for seamless steel pipes has fallen short of expectations, and there is uncertainty about new business development.