Incident: The company released its 2023 quarterly report.
The flange business entered an upward period and the bearing business contributed an increase. The Q1 revenue side performance clearly picked up, and the 2023Q1 company achieved operating revenue of 433 million yuan, +16.36% over the same period last year, a clear recovery, which is basically in line with our expectations. By product: 1) Flanges: Under the influence of the January epidemic and the Spring Festival holiday, we judge that 2023Q1 still achieved significant growth, with sea-wind flange revenue increasing markedly; 2) Bearings: 2022Q4 Hengrun Drive achieved mass production of three-row independent propeller bearings. We judge that 2023Q1 contributed a large increase in revenue. In this regard, the company's inventory reached 238 units by the end of 2022, confirming revenue one after another in 2023Q1. On the other hand, 2023Q1 still had some new bearings shipped, which also contributed to the increase in volume. According to our incomplete statistics, China's fan tender volume reached 101 GW in 2022, +87% year on year, of which 84 GW of onshore wind power, +64% year on year, and offshore wind power 17 GW, +513% year on year.
Looking ahead to 2023, with the sharp increase in wind power installed capacity in the second half of the year, combined with the release of offshore wind power demand, we judge that the company's main flange business is expected to usher in a sharp rise in volume and price. Furthermore, with the release of Hengrun's transmission capacity, the company's wind power bearings are expected to expand at an accelerated pace, and the revenue side is expected to grow at an accelerated pace in 2023.
There was a marked improvement in gross margin and a scale effect. Q1 net interest rate increased significantly. The net profit returned to the mother in 2023Q1 was 29.26 million yuan, +131.61% year on year; net profit after deducting non-return to the mother was 27.17 million yuan, +189.63% over the same period last year. 2023Q1's net sales interest rate and net interest rate without sales were 6.76% and 6.28%, respectively, compared to +3.36pct and +3.76pct, respectively. The profit level improved markedly. 1) Gross profit side: The gross margin of 2023Q1 sales was 14.25%, +2.84pct year on year and +1.01 pct month-on-month, a significant increase. Looking at products, we judge that the gross margin of the flange and bearing business has all increased. Among them, the flange business is, on the one hand, an increase in the company's premium capacity, and on the other hand, an increase in the revenue share of Haifeng flanges with high gross margin; bearing gross margin increased markedly month-on-month, mainly due to Hengrun Drivetrain's higher depreciation of fixed assets at the end of 2022. 2) Expense side: The cost rate for the 2023Q1 period was 6.26%, -1.40pct compared to -1.40pct. Among them, the sales, management, R&D, and financial expenses rates were -0.05pct, -0.19pct, +0.43pct, and -1.59pct respectively. The scale effect was evident, further driving the upward profit level.
Wind power flanges have the potential to continue to expand, and the layout of wind power bearings & gears opens up room for growth. As one of the few companies in the industry that also masters forging and deep processing technology, the company has the potential to continue to expand on a platform basis. 1) In the wind power industry: ① The company's offshore high-power flange technology continues to break through. 9MW has already been mass-produced. The 2021 fund-raising project expanded the production capacity to 12MW, reaching an annual output value of 1,246 billion yuan, consolidating the company's core competitiveness in the field of wind power flanges. ② In 2021, capital was raised to increase wind power bearing & gear projects and improve the layout of the wind power industry chain. Annual production values reached 1,951 billion yuan and 2,455 billion yuan respectively, further opening up room for growth. Among them, the infrastructure for the bearing project has been basically completed and is expected to be released rapidly. 2) In addition, the company's products are also widely used in petrochemical, metal pressure vessels, machinery and other industries. I am optimistic that the company's market share in other fields will increase rapidly in the context of production capacity relaxation.
Profit forecast and investment rating: We maintain the company's 2023-2025 net profit forecasts of 302, 510, and 753 million yuan respectively. The current market value corresponds to dynamic PE 30, 18, and 12 times, respectively.
Maintains a “buy” rating based on the growth potential of the company's wind power flange and bearing businesses.
Risk warning: declining profit levels, increased market competition, declining wind power industry sentiment, etc.