Incident: The company released its 2023 semi-annual report. 2023H1 achieved operating income of 10.667 billion yuan, up 30.66% year on year, and realized net profit of 247 million yuan, down 18.54% year on year; of these, 2023Q2 achieved net profit of 93 million yuan, down 39.48% and 39.61% year on year and month on month, respectively.

Multiple advantages helped the company's 23H1 business revenue scale increase year-on-year, and the gross margin of power cable was under pressure. The company is currently the largest wire and cable manufacturer and sales enterprise in Shanghai, and its production scale ranks among the highest in the industry. By business, the 2023H1 power cable business achieved revenue of 6.545 billion yuan, a year-on-year increase of 33.79%, and a gross margin of 4.92%, a decrease of 1.78 pct from the full year of 2022; wire and cable for electrical equipment achieved revenue of 3.171 billion yuan, a year-on-year increase of 41.93%, and gross margin of 9.52%, a decrease of 0.81 pct from the full year of 2022. As of June 30, 2023, the company has 160 patents and over 50,000 specifications of products. Among them, high-end special products such as highly flexible robot cables and cold-resistant cables have reached the leading level in China.

The company's submarine cable production bases are located in Hubei and Guangxi, and the construction of the Guangxi base is progressing at an accelerated pace. The submarine cable base that Qifan Cable has already been put into operation is located in Luting, Yichang, Hubei. It is equipped with 2 vertical high voltage cable production lines, 4 catenary medium voltage cable production lines, and a 600-meter-long submarine cable production line. In addition, new insulated wire core production lines for submarine cable production and vertical cable armoring production lines are also gradually being put into operation. The annual output value of the submarine cable at the base can reach 2 billion yuan. Furthermore, the company is building a submarine cable production base in Beihai, Guangxi, and plans to build 3 suspended chain (CCV) production lines and 3 vertical (VCV) production lines. While expanding submarine cable production capacity and diversifying product types, it is also expected to benefit from the future development of Guangxi seafront construction. In March 2023, the company decided to change the construction cycle of the Guangxi submarine cable production base from 4-5 years to 2.5 years, and the company's overall production capacity is expected to be released at an accelerated pace.

The company has achieved zero breakthroughs in the 220kV offshore wind power submarine cable project, and expects the promotion of the submarine cable business to bring about increased performance and improved profitability. The submarine cable projects that 2023H1 Company publicly won bids for include the 220kV submarine cable section I of the Huaneng Shandong Peninsula North BW site and the 35kV submarine cable for the Huaneng Daishan No. 1 offshore wind power project. The winning bids were 120 million yuan and 92 million yuan respectively. Among them, the BW Site Sea Wind Project is the first 220kV offshore wind power submarine cable project that the company has publicly won the bid for. It not only enriches the company's project experience and performance endorsement, but also further enhances the ability to obtain orders for high-voltage grade submarine cables, which is expected to drive performance growth and profit improvement.

Maintaining a “buy” rating: The company is the largest wire and cable manufacturer and sales enterprise in Shanghai, and has been actively promoting the development of the submarine cable business in recent years. 2023H1 The construction progress of China's offshore wind power projects has slowed down. The company's submarine cable delivery may be affected to a certain extent, and the gross margin of the power cable business is under pressure. Based on prudential principles, we lowered our original profit forecast. We expect the company to achieve net profit of 593/7.94/971 million yuan (22% down/20% /17% reduction) in 23-25, corresponding to EPS of 1.42/1.90/2.32 yuan. The current stock price corresponds to 23-25 PE of 12/9/8 times, maintaining the “buy” rating.

Risk warning: risk of fluctuations in raw material prices; risk of increased market competition; policy causes offshore wind power investment to slow risk.