Event: On April 21, 2023, the company released the “2022 Annual Report” and the “Report for the First Quarter of 2023”. The company achieved operating income of 993 million yuan in 2022, an increase of 86.16% over the previous year, and achieved net profit of 121 million yuan to the mother, an increase of 277.34% over the previous year, net profit of 107 million yuan after deduction, an increase of 471.71% over the previous year; the company achieved operating income of 271 million yuan in the first quarter of 2023, an increase of 35.15% over the previous year, achieving a net profit of 35 million yuan, the same This is an increase of 0.11%.

The fourth quarter of 2022 achieved operating income of 284 million yuan, an increase of 100.57% over the previous year, net profit of 23 million yuan, a year-on-year increase of 425.83%, net profit of the mother after deduction of 20 million yuan, an increase of 372.70% over the previous year. Gross margin and net margin were 22.49%/8.07%, +1.83pct/+4.99pct over the previous year, +0.45pct/-6.62pct over the previous year. Revenue and profit increased in the fourth quarter, mainly due to rising oil and gas prices in 2022, which led to a rise in industry sentiment, rising demand from leading global companies, and an increase in orders. The month-on-month decline in net interest rates was mainly due to the rise in raw material prices in Q4 2022, the increase in share payment fees due to equity incentive plans, the rise in energy prices due to geopolitics, and the depreciation of the RMB exchange rate in the fourth quarter, which led to corporate exchange losses.

The company's profit growth in the first quarter of 2023 fell short of expectations, but it maintained a high level of competitiveness in the industry. In the first quarter of 2023, the company achieved operating income of 271 million yuan, +35.15% year on year, and net profit of 35 million yuan to the mother, +0.11% year on year. Gross margin and net interest rate were 22.87%/11.25%, -1.99pct/-3.94pct, and +0.38pct/+3.18pct month-on-month. The company's gross profit declined in the first quarter. The main reason was that 7,000 tons of free forging presses and supporting equipment were converted at the end of last year, which increased depreciation costs. At the same time, there were also factors such as increased labor costs and the sharp rise in raw material prices at the end of last year. The main reason for the year-on-year decline in net interest rates in the first quarter was a decrease of about 5 million yuan in non-recurring profit and loss, and an increase of about 4 million yuan in exchange losses, which led to a cumulative decrease in net profit. Due to fluctuations in oil prices, a new cycle of oil and gas capital expansion has begun, and the popularity of deep-sea mining is far superior to that of onshore mining. This will also benefit Dewell's sustainable development.

The technical level has been recognized by customers around the world, and the deep-sea business is growing rapidly. The company occupies a high position among the world's core customers. It has deep cooperative relationships with customers such as TechnipFMC, SLB, Baker Hughes, etc., and was included as a standard version 2.0 supplier for TechnipFMC products. It was also selected as one of Schlumberge's 25 core suppliers, and is highly recognized by the industry. Deep-sea equipment components are divided into part-based and componentized. In 2022, the company developed componentized deep-sea connectors, and deep-sea modules accounted for about 50% of the company's orders in Q1 2023.

The multi-directional die forging production line is expected to be launched within the year, and high-end valves will give the company new impetus for growth. The company raised funds for the 350MN multi-directional double-acting composite extrusion production line. After completion, it mainly entered the high-end valve and pipe parts market. As the scale of development of oil and gas, which is difficult to develop in deep-sea and unconventional oil and gas, continues to expand, demand for high-end gate valves in the oil and gas sector continues to rise, and multi-directional die forging, a leading process, is also beginning to be widely favored by the industry. The 350MN multi-directional die forging hydraulic press can be used to shape and manufacture key components of equipment in special working conditions such as deep-sea, fracturing, etc. It will have greater technical and cost advantages in batch manufacturing. At the same time, it will also effectively enhance the company's product quality and further enhance the company's market competitiveness and market share. The company's multi-directional die forging is expected to land in the fourth quarter and produce samples, which are expected to be shipped next year.

Investment advice: The company is a world-renowned manufacturer of special parts for oil and gas equipment. It has leading advantages in the deep-sea field and has a good customer base. We believe the company is expected to maintain steady growth in the future. The company is expected to achieve net profit of 220 million yuan/320 million yuan in 2023/2024, corresponding to PE 23/16 times.

Risk warning: Domestic epidemics are repeated; new products are advancing less than expected; overseas demand falls short of expectations.