Incidents:
The company released its semi-annual report for 2023. In the first half of 2023, it achieved operating income of 7.239 billion yuan, an increase of 1.22% over the previous year; realized net profit of 281.5 million yuan, an increase of 49.55% over the previous year; and achieved non-net profit of 2175 million yuan, an increase of 34.63% over the previous year. Among them, 23Q2 achieved operating income of 4.164 billion yuan, an increase of 3.48% over the previous year; realized net profit of 189.8 million yuan, an increase of 28.55% over the previous year; achieved net profit of 167.1 million yuan after deducting non-net profit of 167.1 million yuan, an increase of 25.43% over the previous year. The performance slightly exceeded market expectations.
Increased profit did not increase revenue, cost reduction & product structure optimization led to significant profit growth. The company's revenue increased by only 1.22% in the first half of the year, which is in stark contrast to the 34.63% increase after deducting non-profit. We believe that the slight increase in revenue is mainly due to a decrease in the company's raw material costs, a corresponding adjustment in product prices, and a decrease in the value of goods. Looking at physical distribution volume, cable distribution increased 12% year on year, polymer output increased 14% year on year, charging volume increased 17% year on year, charging pile equipment amount increased 108% year on year, and various business segments of the company formed a substantial increase. The higher profit growth rate than revenue is mainly due to the continuous release of production of high-profit varieties.
Gross margin has been rising steadily, and polymers have become the main contributor to profit
The company's overall gross margin for the first half of the year reached 13.88%, an increase of 1.02 pct over the previous year. The gross margin for a single Q2 further increased to 13.96%, an increase of 0.19 pct over 23Q1. The increase in gross margin mainly comes from the polymer sector. The gross margin of the polymer sector increased to 15.74% in the first half of the year, an increase of 2.52 pct over the previous year. The successive release of production capacity in the ultra-high pressure series had a positive impact on this sector. Revenue in the communications sector has declined. We expect that production line adjustments in the first half of the year will have a phased impact on production. With the optimization of the product structure in the communications sector, we expect to enter a period of growth thereafter.
There is still plenty of room for long-term growth with fixed capital investment to expand production capacity
The company plans to raise no more than 1.7 billion yuan in cash from specific targets, including the controlling shareholder Maritime Control Group, to build the Qingdao Plant, Ultra High Voltage Phase III, a new cable production line, and the Shanghai New Materials Research Institute. At the same time, the company and Shanghai Petrochemical signed a “Letter of Intent for Strategic Cooperation” in August 2023, indicating that the UHV integrated production line and joint research and development will still have plenty of room for the company's future production capacity.
Profit Forecasts, Valuations, and Ratings
We expect the company's operating income in 2023-2025 to be 163.15/180.9/20.708 billion yuan, with a year-on-year growth rate of 11.18%/10.88%/14.47%, net profit for the mother to be 606/8.34/1,143 million yuan, a year-on-year growth rate of 47.44%/37.81%/36.93%, EPS of 0.58/0.81/1.1 yuan/share, and a 3-year CAGR of 40.63%. Given that the company's polymer business and new energy charging piles are in a period of rapid development, and the basic market of the cable business is stable, we gave the company 18.5 times PE in 2024, maintained a target price of 15 yuan, and maintained a “buy” rating.
Risk warning: 1) The progress of fund-raising projects falls short of expectations; 2) market demand is slowing down; 3) competition is intensifying.