The company announced that in the first three quarters of 2014, operating income reached 1.209 billion yuan, an increase of 19.74 percent over the same period last year, and net profit was 60.34 million yuan, an increase of 434.96 percent over the same period last year. The company's net profit after deducting non-profit in the first three quarters was 63.56 million yuan, an increase of 546% over the same period last year. The net cash flow of operating activities was 49.1 million yuan, which was significantly higher than that of-75.87 million yuan in the same period last year, which was basically in line with our previous expectations.
A number of financial indicators prove that the company is in a benign situation of performance reversal. The company's revenue in the first three quarters increased by 20% year-on-year, with a gross profit margin of 18%, up slightly from the same period last year. The growth rate of net profit after deducting non-profit of the company reached 546%, which is significantly higher than that of net profit. The improvement of the main business is the core driving force of the company's performance reversal.
In the first three quarters of 2014, the company achieved a net cash flow of 49.1 million yuan in operating activities, which was significantly higher than that in the same period last year, indicating that with the overall recovery of the wind power industry, the downstream payback has also improved significantly. We expect the company's casting production to increase by about 40% year-on-year in 2014, which will lead to a significant reversal in the company's performance.
Downstream expansion of wind power operation business opens room for the company's long-term market capitalization growth. At present, wind farm operation has become the most prominent profitability link in the upstream and downstream of the wind power industry chain, and the gross profit margin (more than 40%) is significantly higher than that of equipment manufacturing (about 20%). At present, the internal rate of return of wind farm projects is between 10-20%, providing a long-term stable and attractive return on funds. The synergy between the new business and the original business is significant, which helps to maximize business value. The company is involved in the wind power operation business, and the existing customers will become the suppliers of the wind farm projects, that is, the company will become the "customers of the original customers". This will not only help to strengthen the relationship between the company and the upstream and downstream of the industrial chain, but also enhance the bargaining power of the original casting business, which is expected to maximize the overall profit space of the upstream and downstream of the industrial chain. It is suggested that we should focus on the implementation progress of the company's follow-up wind power operation project.
Maintain earnings forecasts and buy ratings. We expect the company to achieve earnings per share of 0.17,0.23 and 0.29 yuan in 2014-2016, with a compound growth rate of about 143% in 2013-2016 and 32% in 2014-2016, which currently corresponds to 35 times PE in 2015. We suggest that we should pay attention to the performance flexibility of the company in the industry recovery cycle, and be optimistic about the performance and valuation brought about by the downstream wind power operation, so as to maintain the buy rating.
