Core ideas:

The company is a global supplier of oil and gas equipment forgings, and has become a qualified supplier of large international oil service companies such as SLB and TechnipFMC, enjoying a broad space for development. Global upstream capital expenditure on oil and gas continues to grow in 2023, with an estimated increase of 12.42%. The prosperity of the industry is good. The company continues to make efforts in the deep-sea field, with the landing of the "deep-sea oil and gas key components project" & "Ni-based alloy surfacing project", the company is expected to further enhance the competitiveness and market share in the field of deep-sea equipment; the company's new investment projects can be used in the batch forming manufacturing of deep-sea, fracturing and other key parts of equipment, greatly enhance product competitiveness, and open up the high-end valve market and open the second growth curve.

Global supplier of oil and gas equipment forgings, national specialist and new "Little Giant":

The company ploughs the oil and gas equipment industry chain, covering onshore wellhead oil production tree special parts, fracturing equipment special parts, deep-sea equipment special parts, drilling and production special parts, to provide specialized products and services for global oil service companies. The company's customers have covered SLB,TechnipFMC, Jerry shares, Baker Huges,Aker Solutions, drill system and other large oil service companies at home and abroad, and have passed the audit of end users BP, Chevron Corp, TotalEnergies SE, Exxon Mobil Corp, Saudi Aramco, Gulf of Mexico Oil Company, Petroleo Brasileiro SA Petrobras and other oil giants.

Global upstream capital expenditure on oil and gas continues to grow, and the prosperity of the industry is improving:

1) overall: according to IHS data, global upstream capital expenditure on oil and gas is expected to reach US $561.2 billion in 2023, an increase of 12.42% over the same period last year.

2) Deep-sea oil and gas: according to the forecast of Wood Mackenzie, the global offshore oil and gas capital expenditure will reach US $157 billion in 2023, an increase of 13% over the same period last year. Capital expenditure on deepwater and ultra-deepwater oil and gas is expected to reach $57 billion, an increase of 33 per cent over the same period last year. In 2023, deepwater and ultra-deepwater oil and gas capital expenditure will become the main growth point of offshore oil and gas capital expenditure.

3) Shale oil and gas: global shale oil and gas capital expenditure is gradually released. According to statistics, major US shale oil companies maintain cautious capital expenditure plans, but based on the excess returns of US shale oil companies in 2022 against the background of high oil prices, the net profit of sample companies will increase by 201% in 2022 compared with the same period last year. Shale oil capital expenditure is expected to be released gradually, and the capital expenditure of US shale oil sample companies is expected to increase by 28% in 2023. In the domestic market, domestic policies continue to promote unconventional oil and gas reserves and production.

From "parts" to "components", the company continues to focus on deep-sea equipment:

The performance of the company's deep-sea products fully meets the requirements of industry standards such as API 16A/API 17D, and the company's deep-sea products have been widely used in dozens of deep-sea oil and gas field projects around the world, and the performance of the products has been fully verified, so the company has become one of the few domestic suppliers that can provide high-grade special parts for deep-sea equipment. In the field of deep-sea equipment, the company's main competitors are foreign unlisted companies, at the same time, the company has a strong cost-effective advantage. The global market for deep-sea oil and gas underwater production equipment is highly concentrated, which is mainly monopolized by TechnipFMC, Aker Solutions, Schlumberger and Baker Hughes. In 2018, the industry CR4 reached 78%. The company has become a qualified supplier of the above four, the market space is opened, and the company's deep-sea business is expected to grow rapidly.

The company's fundraising program is expected to revolutionize existing processes and open the second growth curve:

The company's fund-raising project 350MN multi-directional die forging hydraulic press can be used for the forming and manufacturing of key parts of equipment under special conditions such as deep sea and fracturing, which will have greater technical and cost advantages in batch manufacturing, and will also effectively enhance the company's product quality and further improve the company's market competitiveness and market share. According to the literature, the material utilization of the multi-directional composite extrusion technology can be doubled, and the material cost is expected to be saved by more than 21%. The company is expected to greatly improve the competitiveness of its products by virtue of the new process. And after the completion of the fund-raising project, the company is expected to enter the high-end pipeline valve business, further increase the company's product coverage in the oil and gas field, and open the second growth curve.

Investment advice:

We expect the company's revenue growth from 2023 to 2025 to be 33%, 35% and 35%, respectively, and its net profit to grow by 79%, 48%, 32%, corresponding to PE 25.9X, 17.5X, 13.3X. The company has outstanding growth, and we give Buy-B an investment rating for the first time, with a six-month target price of 33.59 yuan, equivalent to a dynamic price-to-earnings ratio of 30 times 2023.

Risk tips: 1) the risk of a sharp fall in oil prices; 2) the risk of increased market competition; 3) the risk of reliance on large customers; and 4) the risk of intensified international trade frictions.