In Q2, the median net profit growth rate was 152%. Optimistic about the company's medium- to long-term growth potential, the company issued a 23-year semi-annual performance forecast announcement. It is expected that the first half of 2023 will achieve net profit attributable to shareholders of listed companies of 85 million yuan to 95 million yuan. Compared with the same period in '22, it will increase 5014 million yuan to 60.14 million yuan, a year-on-year increase of 144%-173%, and a median growth rate of 158%; net profit after deduction is 81-92 million yuan, up 166%-202% year on year, with a median growth rate of 184%. Q2 is expected to achieve net profit of 5084 million yuan to 60.84 million yuan in a single quarter, an increase of 129%-175% over the previous year, a median growth rate of 152%, a median growth rate of 152%, and a quarterly non-net profit of 537-64.7 million yuan, an increase of 168%-223% over the previous year, and a median growth rate of 196%. Considering that the company currently has sufficient orders and the company's order conversion cycle is 1-1.5 years, we predict that net profit from the mother in 23-25 will be 2.3/31/430 million, respectively, giving the company 24 times PE in 23 years, and the corresponding target price of 12.31 yuan, maintaining the “buy” rating.
Ongoing orders are plentiful, and performance release has entered an upward cycle
Since '22, the company has signed more than 4.1 billion new orders, totaling more than 4.1 billion dollars. Full on-hand orders have laid a good foundation for the company's performance release. The company once again won the bid for the BASF modular project of 50 to 65 million US dollars in January '23. As the proportion of project modularity increases, the gross margin level is expected to continue to rise. The company began cooperating with BASF in 2004, and has now formed cooperative relationships with dozens of foreign-funded enterprises, including Linde Gas, Honeywell, Covestro, Dow Chemical, and INVISTA. The top five customers account for about 50% of revenue, and BASF's revenue accounts for about 10%. Considering that by 2030, BASF will invest 10 billion euros to build an integrated base in Zhanjiang, and the sustainability of the company's orders can be expected.
Downstream industries such as chemicals and LNG are popular, and production capacity is released quickly to meet industry needs. Modular construction has many advantages such as shortened construction periods, safe construction, and cost savings, and is suitable for projects with poor construction environments such as offshore projects and Arctic projects. Currently, in the downstream industry segment, chemicals are benefiting from European industrial transfer, accelerated development of LNG projects, and the trend of large-scale modularity in the water treatment and air separation industries is obvious, and modular production has benefited from the continued prosperity of the industry. By the end of 2022, the company had two mature bases in Zhangjiagang. Currently, it is expanding 2 bases in Zhanjiang, Guangdong. The first phase covers an area of 50,000 square meters and is now in operation. With the release of production capacity, it may drive revenue of 350 million yuan. The second phase base covers an area of 80,000 square meters. The second phase is expected to be put into operation within 23 years, and the rapid expansion of production capacity is expected to further meet customer needs.
A long-term mechanism to reduce costs and increase efficiency is in place, and the company's profits have been partially released. The company has always focused on the design and manufacture of industrial modules, giving full play to the company's “design-procurement-modularization-construction” (EPFC) industry chain and integrated service capabilities. In the first half of 2023, the execution and settlement of projects contracted by the company was good, and the scale of revenue increased significantly. At the same time, the company continued to implement lean management to further develop a long-term mechanism to reduce costs and increase efficiency, and achieve steady growth in performance. Considering the company's high short-term orders and the high downstream prosperity of chemicals, LNG, etc., we forecast net profit for 23-25 to be 23/31/4.3 billion, respectively, corresponding to the 23-25 year valuation level of 19/14/10 times, the average PE of comparable companies in 23 years was 21 times, giving the company 24 times PE in 23, and the corresponding target price of 12.31 yuan, maintaining the “buy” rating.
Risk warning: Project construction progress falls short of expectations; market expansion falls short of expectations; risk of high customer concentration; management risk due to expansion of business scale; performance forecast is preliminary accounting results.