Event: The 2023 interim results were released, and the performance fell short of expectations. 2023H1 had total revenue of 13.764 billion yuan (RMB, same below), yoy +15.9%; net profit of 84.89 million yuan, yoy +63.8%, and performance was lower than expected.
The company's core power equipment business revenue has achieved steady growth. 2023H1's core power equipment revenue was 6.702 billion yuan, yoy 24.31%, of which coal power equipment was 4,058 billion yuan, yoy +25.43%; hydropower equipment was 1,175 billion yuan, yoy -26.4%; and nuclear power equipment was 1,278 billion yuan, yoy +236.63%.
Prices for some historical projects were low, and the company's gross margin fell 4.46 pcts year on year in the first half of the year, which is the main reason why the company's performance fell short of expectations.
In 2023 H1, the company's operating gross profit was 1,454 million yuan, yoy -18.38%; gross margin was 10.72%, and gross margin fell 4.46 pcts year on year, mainly due to lower contract prices for some historical projects. Take the company's core new power equipment as an example. 2023H1's gross profit for coal power equipment was 490 million yuan, gross margin was 12.09%, a year-on-year decrease of 2.01 pcts; gross margin of hydropower equipment was 104 million yuan, down 8.85% year on year, down 14.23 pcts; nuclear power Equipment gross profit was -45 million yuan, and gross margin was -3.54%, a year-on-year decrease of 39.98 pcts.
The trend has not changed, and the company's new orders have exploded. In the first half of 2023, the company's official contract amount was 32.585 billion yuan, yoy +109.45%, of which 1. The new power system was 18.928 billion yuan, yoy +187.79% (coal power 11.631 billion yuan, yoy +437.97%; hydropower 3.82 billion yuan, yoy +78.67%; nuclear power 2,548 billion yuan, yoy +1,830.30%; gas and electricity 399 billion yuan, yoy -80.33%); 2. Green and low-carbon driving equipment was 1,318 billion yuan , yoy +56.72%; 3. Clean and efficient industrial systems of 3,530 billion yuan, yoy +12.74%; 4. General engineering contracting and trade of 5.794 billion yuan, yoy +118.64%; 5. Modern manufacturing and services of 3,016 billion yuan, yoy +27.85%; active expansion of production such as nuclear power and storage, and active development of new fields such as compressed air energy storage. As of H1 in 2023, the company has invested 467.2804 million yuan in fixed capital, mainly for nuclear power base capacity enhancement projects and the first phase of savings capacity enhancement projects. In terms of expanding into new fields, the company is active in the fields of renewable energy, marine equipment, hydrogen energy, energy storage and comprehensive utilization. For example, in the first half of the year, the company won the bid for air turbine equipment for the 60 MW/600 MWH liquid compressed air energy storage demonstration project in Golmud, Qinghai, and won the bid for the world's first 300MW non-combustible compressed air energy storage project in Yingcheng, Hubei.
Investment analysis: Affected by the company's historical order prices, the company's performance in the first half of the year fell short of expectations. We believe that with the gradual confirmation of revenue from new orders signed at the end of last year, the company's gross margin is expected to be significantly restored. Considering the impact of the first half of the year's performance on the whole year, we lowered the company's profit forecast for 2023-25 to 341/15.90/1,714 million yuan (before the reduction was 6.15/16.20/1,726 million yuan). The current market capitalization corresponding to the company's PE multiplier for 2023-25 is 11/2/2 times, which is significantly lower than 13/10/8 times that of comparable Hong Kong stock companies (Dongfang Electric and Goldwind Technology). We believe that as a leading domestic energy equipment manufacturer, the company's related orders will gradually be fulfilled along with many core equipment such as thermal power, savings, and nuclear power. Adding 1.7 billion dollars to the previous majority shareholder's subscription for new domestic shares, the company's three-step strategy of “stabilizing the foundation, seeing results, and improving the level” will be steadily implemented. Considering that the company's reasonable performance will mainly begin to be reflected next year, with reference to a comparable company's average valuation of 10 times in 2024, for prudence, we gave the company 5 times PE valuation in 2024. Overall, we maintained a “buy” rating.
Risk warning: New thermal power installations fall short of expectations, approved commencement of pumped storage capacity falls short of expectations, demand for flexible thermal power transformation falls short of expectations, raw material costs remain high, and international business risks.