Introduction to this report:
The company's performance for the first half of 2023 was in line with expectations. The company's silicon steel project was launched, and the power transmission and distribution equipment sector grew rapidly.
We expect the release of silicon steel projects and transmission and distribution equipment production capacity, which will continue to increase the company's performance.
Key points of investment:
Maintain the “increase in holdings” rating. The company achieved revenue of 1,235 million yuan in the first half of 2023, an increase of 9.82% over the previous year, and realized net profit of 154 million yuan, an increase of 32.31% over the previous year. The company's performance was in line with expectations. Maintaining the company's forecast of 2023-2025 EPS of 1.21/1.58/2.02 yuan, corresponding net profit to parent would be 4.02/527/672 million yuan, respectively. Considering the decline in valuation levels of companies in the same industry, referring to similar companies, the company was given a valuation of 20 times PE in 2023, lowered the company's target price to 24.2 yuan (originally 32.6 yuan), and the “increase in holdings” rating was maintained.
Aiming at partial implementation of the silicon steel project, production will be released steadily in the second half of the year. On June 30, 2023, the company's 80,000-tonne silicon steel project was partially put into operation. It is expected that 2023 will bring about an increase in production of 20,000 to 30,000 tons, with a focus on release in the second half of the year. According to the company's announcement, the project is expected to be fully put into operation in June 2024, and is expected to bring an increase of 60,000 tons in 2024. The company's orientation is that silicon steel production will gradually increase as the project is implemented.
The power transmission and distribution equipment sector is growing rapidly. In the first half of 2023, the company's power transformer production volume was 5.06 million kVA, up 50.75% year on year; 5119 sets of electrical equipment, up 5.13% year on year; 656 box-type substations, up 53.99% year on year. From January to July, China's power grid infrastructure investment completed cumulatively increased 10.4% year on year. In the context of positive demand, the company's power transmission and distribution equipment is expected to continue to grow.
The silicon steel grade structure will be optimized. In the first half of '23, the company produced 53,300 tons of silicon steel. Due to the power shutdown of the 80,000-ton high-end magnetic new material project, production decreased by 0.33 million tons over the same period last year. However, the company's silicon steel project is positioned as a high grade and oriented towards silicon steel. As the project is implemented, the company's silicon steel grade structure will be optimized, and the profitability of the company's silicon steel products will continue to rise.
Risk warning: The progress of fund-raising projects falls short of expectations; there is a risk of a sharp decline in power grid investment.