Incidents: In 2022, the company achieved revenue of 1.94 billion yuan, a year-on-year decrease of 15.2%; achieved net profit of 950 million yuan, a year-on-year decrease of 78.6%; net profit of non-return mothers was 670 million yuan, a year-on-year decrease of 75.8%. Among them, the company achieved revenue of 590 million yuan in the fourth quarter, an increase of 7.9% over the previous quarter; it achieved net profit of 0.4 billion yuan to the mother, an increase of 170% over the previous quarter.

Profits were restored in 22Q4, and the expense ratio remained stable. Profit side: In 2022, the company's gross margin was 10.9%, down 13.4 pp from the previous year; the net interest rate was 4.9%, down 14.3 pp from the previous year, mainly due to the influence of the wind power industry in 2022, the prudent start of wind farm construction, the reduction in the company's wind power flange orders, and lower prices. Among them, the gross margin for the single quarter of 2022/Q4 was 13.2%, an increase of 5.8 pp over the previous quarter; the net interest rate was 6.5%, an increase of 3.9 pp over the previous quarter, and the profit inflection point was beginning to show. Expense side: In 2022, the company's sales expense ratio was 0.5%, down 0.06 pp year on year; management expenses rate was 6.3%, down 1.1 pp year on year; financial expense ratio was -0.8%, down 2 pp year on year. Overall, the company's expenses rate was properly controlled during the company period.

The wind power flange business is expected to recover and procurement advantages will continue to benefit. In 2022, the company's wind power flange revenue was 920 million yuan, down 24% year on year; gross margin was 10.3%, down 22.8 pp year on year. 2022 is the first year of Haifeng's price parity. The industry is under short-term pressure, and the company's products have been affected to a certain extent. According to bidding data estimates, we expect 70 GW of domestic wind power to be installed in 2023 (60 GW for land wind, 10 GW for sea wind), benefiting from the recovery of the industry and large-scale development of superimposed fans. The company's product advantages are obvious, and flange leaders are expected to recover quickly.

Furthermore, the company's largest supplier is a subsidiary of CITIC Special Steel, accounting for 61.7% of purchases in 2022. CITIC Special Steel is headquartered in Jiangyin. It has significant advantages on the transportation cost side, which helps the company reduce costs and increase profits.

Wind power bearings open up new growth points, and the business is expected to grow rapidly. The wind power bearing production line of Hengrun Drive, a subsidiary of the company, was put into use in July 2022. The new product, 6MW three-row independent propeller bearings, was mass-produced in 202Q4, and the 8MW independent propeller bearing is in the bench test certification stage. In 2022, the company achieved sales of 981 wind power bearings (327 sets), the unit price of the product was about 350,000 yuan/set, and wind power bearings achieved a breakthrough of 0 to 1. Furthermore, the company is further developing wind power spindle bearings, which are expected to be shipped in small batches in 2023. Normally, spindle bearings have a higher gross profit margin compared to flanges, which is expected to drive overall profit growth along with business growth.

Profit forecasts and investment recommendations. The company's revenue for 2023-2025 is estimated to be 35.8/51.8/6.27 billion yuan respectively, and the net profit growth rate of Guimu is 304.4%/65.6%/26.6% respectively. Benefiting from the recovery of the industry, profits are expected to recover rapidly. The company's leading wind power flange position is stable. Under the trend of larger fans, the large megawatt flange forging capacity is prominent. At the same time, it extends downstream to bearings. The 2023-2025 performance is expected to be fully released and the “buy” rating will be maintained.

Risk warning: Risk of influence of macroeconomic factors; risk of rising raw material prices and downstream installed demand falling short of expectations; risk of fund-raising projects falling short of expectations; risk of exchange rate fluctuations affecting overseas business revenue