The company's net profit to parent for the first half of 2023 was 60 million yuan, turning a loss into a profit over the same period last year. In the first half of the year, the company made every effort to implement cost savings and consumption reduction efforts, and the overall profit level increased. In the second quarter, due to multiple factors, the overall construction pace of Seabreeze was slightly delayed. Considering the wind farm construction cycle and the pace of grid-connected installation, we believe that the Haifeng project, which was postponed in the first half of the year, is expected to start intensively in the second half of the year. Submarine cable order delivery is expected to be increased in the second half of the year, and the company's submarine cable performance can be expected. At the same time, the company is actively developing the land cable market, and has achieved major breakthroughs in all sectors of the land cable business. We maintain the company's net profit forecast for 2023/24/25 at 443/635/831 million yuan, and the corresponding EPS forecast of 0.32/ 0.46/0.61 yuan. Referring to comparable company valuation levels, we gave the company 20xPE for 2023, maintained a target price of 6 yuan, and maintained a “buy” rating.

The net profit of 2023H1 was 60 million yuan, turning a loss into a profit. In the first half of 2023, the company achieved operating income of 22.242 billion yuan, +9.49% year-on-year; realized net profit of 60 million yuan, +377.86% year-on-year, reversing losses over the same period last year; achieved net profit of 55 million yuan after deducting non-attributable net profit of 55 million yuan, +212.31% year-on-year. Among them, the company achieved revenue of 11.842 billion yuan in a single quarter in 2023Q2, +14.65%, +13.86%; net profit of 21 million yuan, +135.55%, and -45.70% month-on-month; net profit after deducting non-return net profit of 20 million yuan, +127.82% year-on-year, and -42.75% month-on-month. The company deeply focuses on the main business, competes on external markets, and focuses on internal management. On the one hand, the company continues to optimize sales policies, seize market opportunities, dig deep into key regions, and develop key projects. The number of orders has increased compared to the same period last year; on the other hand, the company has continuously strengthened internal management, made every effort to improve quality, efficiency, and reduce costs and consumption. By optimizing production, process, supply chain management, etc., it effectively improves organizational management efficiency and turns losses into profits during the same period.

Cost pressure reduction has been actively implemented, and overall profit levels have increased. In the first half of 2023, the company's overall gross margin was 5.40%, up 0.81 pcts year on year; net profit margin was 0.32%, up 0.41 pcts year on year. Among them, gross margin for the 2023Q2 single quarter was 5.49%, up 1.59 pcts/0.20 pcts year on year, respectively; net profit margin was 0.25%, up 0.78 pcts year on year, and down 0.16 pcts month on month. The company vigorously promotes cost pressure reduction and cost pressure control, strictly controls raw and auxiliary materials, logistics, dishes, waste disposal, machinery consumption, etc., and has drastically reduced production costs. At the same time, the company actively optimized the organizational structure to reduce management costs, and reduced interest rates through negotiations with partner banks and financial institutions. Using various financial instruments such as supply chain finance, acceptance drafts, and letters of credit, etc., the company effectively reduced the scale of corporate loan flows and further reduced financial expenses. Production cost control and cost pressure reduction have effectively promoted the implementation of cost-side cost reduction and consumption reduction efforts, and the company's overall profit level has improved.

Submarine cable order delivery is expected to be increased in the second half of the year, and the company's submarine cable performance can be expected. In the second quarter of 2023, due to multiple factors, there was a slight delay in the overall construction pace of Seabed Wind and the submarine cable delivery progress slowed down, but entering the third quarter, the delivery of submarine cable orders in July and August has clearly improved month-on-month. Considering the wind farm construction cycle and the pace of grid-connected installation, we believe that the Ocean Wind Project, which was postponed in the first half of the year, is expected to start intensively in the second half of the year, and delivery of submarine cable orders is expected to increase in the second half of the year. As the company gradually breaks through the three core barriers of territorial resources, technology application, and historical performance in the submarine cable field, the company's ability to obtain submarine cable orders continues to increase. It is expected that it will receive a significant share of submarine cable orders in the Haifeng project that will begin construction in the second half of the year, accelerate the release of flexibility in the company's submarine cable performance, optimize the company's product structure and further grow its business performance.

Market development is strong, and the main land cable business is steady, moderate and improving. The company's land cable business mainly includes four segments: power cables, electrical equipment cables, communication cables and optical cables, and bare conductors and their products. Each sector has achieved major breakthroughs. According to the announcement of the company's 2023 mid-year report, in terms of power cables, the company invigorates the main market, uses the power industry as the basic support for performance, uses the power industry as a new growth point for the power market, and has steadily ranked among the highest in the industry; in terms of the new energy market, strengthened market development through technical exchanges, has obtained more than 1 billion yuan in orders, and successfully cooperated with the top ten leading enterprises in the industry; in the equipment market and communications market, the company has actively promoted strategic cooperation with Zhenhua Heavy Industries and successfully developed strategic customers such as China Telecom and Beijing Century Internet; in terms of the nuclear power market, It became the only cable enterprise member in China Power Investment's nuclear power supply chain, and became a member of the “Guoyuan No. 1” industry chain alliance; in terms of the aerospace market, the company successfully served models such as ARJ21, C919, and AG600, and completed R&D and marketing work for more than 10 projects, including a flight center, 601 station, and Hongdu 650 station.

Risk factors: raw material prices fluctuated greatly; construction of offshore wind power projects fell short of expectations; industry competition intensified; the company's new production capacity and commissioning progress fell short of expectations; promotion progress of submarine cable ultra-high voltage products fell short of expectations.

Profit forecasting, valuation and rating: In the first half of the year, the company made every effort to implement cost savings and consumption reduction efforts, and the overall profit level increased. The second quarter was affected by multiple factors. The overall construction pace of Seabreeze was slightly delayed. Considering the wind farm construction cycle and the pace of grid-connected installation, we believe that the Haifeng project, which was postponed in the first half of the year, is expected to start intensively in the second half of the year. Submarine cable order delivery is expected to be increased in the second half of the year, and the company's submarine cable performance can be expected.

At the same time, the company is actively developing the land cable market, and has achieved major breakthroughs in all sectors of the land cable business. We maintain the company's net profit forecast for 2023/24/25 at 443/635/831 million yuan, and the corresponding EPS forecast is 0.32/0.46/0.61 yuan. Refer to the valuation level of comparable companies (selecting Dongfang Cable, Zhongtian Technology, Hengtong Optoelectronics, and Qifan Cable, which also belong to the wire and cable industry, as comparable companies. Wind unanimously expects an average PE of 14x for 2023). Considering that the company's expected performance growth rate is higher than the average expected performance growth rate of comparable companies, we gave the company a certain valuation premium In 2023, 20xPE maintained a target price of 6 yuan and maintained a “buy” rating.