Incident: The company released its 2023 semi-annual report. In 2023H1, the company achieved revenue of 600 million yuan, +44.79% year-on-year, and net profit of 81 million yuan, or 42.60% year-on-year. Looking at Q2 alone, 23Q2 achieved revenue of 330 million yuan, +53.80% year on year, +21.76% month on month; return net profit was 51 million yuan, 91.56% year on year, and +66.06% month on month.

Comment:

The release of new equipment production capacity has helped the company's revenue scale grow rapidly. Deep-sea oil and gas development is the future development trend of the industry. With the advancement of technology, the improvement of operational efficiency, and the sharp decline in raw material procurement costs and drilling service costs, international oil companies are actively arranging offshore oil and gas exploration and development.

Since the beginning of 2022, more and more deep-sea projects have been developed as the crude oil market recovers, and investment in the deep-sea sector has increased. At the same time, after 2022Q3's 7,000-ton equipment was put into production, the manufacturing capacity of special parts for large-scale deep-sea equipment was greatly improved. This also brought more orders to the company and helped the company maintain rapid growth in its revenue scale.

Product structure optimization+increased scale effect has effectively offset the decline in profitability of wellhead and unconventional oil and gas extraction businesses, and there is still plenty of room for future improvement in the company's profits. Affected by factors such as increased market competition and customer price adjustments, the gross margin of the company's onshore wellhead and unconventional oil and gas extraction business has declined markedly in recent years. However, thanks to continuous optimization of the product structure (2023H1 high-value-added deep-sea equipment special parts account for 45%, an increase of 15 pct over the same period last year), and good cost control, and the scale effect of good cost control continues to increase (2023H1 sales expense ratio, management cost rate, R&D expense rate, and financial expense ratio decreased by 0.48 pct, 0.54 pct, 1.02 pct, and 0.19 pct, respectively, compared to the same period last year), the company's profitability has remained stable. The gross sales margin of 2023H1 was 23.01%, down 1.58pct from the previous year, and the net sales profit margin was 13.50%, down 0.21pct from the previous year. Currently, there is still a certain difference between the company's revenue structure and the order structure. In the future, as the share of high value-added products continues to increase and the scale effect becomes more apparent, there is still plenty of room for improvement in the company's profitability.

The fund-raising project is progressing smoothly, and the development of new products and markets is worth looking forward to. The 350MN multi-directional die forging project funded by the company's IPO is progressing in an orderly and steady manner. Currently, most of the equipment has already entered the factory. It is expected that 23Q4 will begin trial production. After the completion of the project, the company will form a large-scale manufacturing capacity for high-end valves and pipe parts products, further increase the company's product range in the oil and gas sector, and can also be used to produce products in aerospace, nuclear power and other fields.

Profit forecast: Considering that the rapid release of the company's new equipment production capacity is still limited by some post-processing processes, the profit forecast was lowered. The company's net profit for 2023-2025 is estimated to be 1.82/2.60/361 million yuan, compared to +49.94%/+42.80%/+38.89%, corresponding to EPS 0.94/1.34/1.86 yuan, corresponding to PE25.73/18.02/12.97 times the current stock price. Continue to recommend and maintain the company's “buy” rating.

Risk warning: Project progress falls short of expectations, oil and gas capital expenditure falls short of expectations