Incident: The company released its report for the first quarter of 2023. The first quarter achieved operating income of 572 million yuan, an increase of 47.87% over the previous year; net profit attributable to shareholders of listed companies was 803.39 million yuan, an increase of 119.25% over the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 80,2838 million yuan, an increase of 128.51% over the previous year; and basic earnings per share of 0.24 yuan.

The performance of two-wheel drive has increased. The company's 2023Q1 revenue was 572 million yuan, and net profit was 80 million yuan, all of which were the best levels in the same period in history. During this period, the company's business showed a two-wheel drive state, and the sales price of silicon steel increased significantly year-on-year, which led to a sharp increase in the scale of revenue and gross profit for silicon steel products. At the same time, the impact of previous increases in raw material prices for power transmission and distribution and control equipment products on profits was eliminated as sales prices gradually spread to the market. Gross sales margin increased in the first quarter, and net profit attributable to listed shareholders increased year-on-year Larger.

The net profit margin on sales in a single quarter is the best in history. The company's quarterly gross sales margin for 202Q1-2023Q1 was 19.02%, 19.62%, 22.03%, 20.20%, 24.45%, respectively, and the 2022Q1-2023Q1 quarterly expense ratio was 8.27%, 5.83%, 5.49%, 5.49%, and 6.99%, respectively. 2022Q1-2023Q1's quarterly sales margin was 9.15%, 10.87%, 13.71%, 11.90%, 13.93%, and 2023Q1's gross margin increased dramatically during the period. Expense rates increased slightly, and net interest rates hit the best level in a single quarter in history.

As the industry boom cycle approaches, demand is expected to expand significantly. Benefiting from the annual increase in downstream power installed capacity and the acceleration of power grid construction, revenue from transmission and distribution equipment and silicon steel continues to grow. New coal power installations are 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, the average installed capacity of wind power in the country in 2023-2025 was about 60 GW to 70 GW, once again entering a high boom phase. The restart of downstream thermal power and the rise in new wind energy continued to drive demand for silicon steel and transformers.

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 15.7, 11.6, and 9.2 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.