Event description: on October 25, 2023, the company released its third quarterly report for 2023. In 2023, Q1-Q3, the company achieved revenue of 5.115 billion yuan, an increase of 13.9% over the same period last year, a net profit of 622 million yuan, an increase of 79.5%, and a non-return net profit of 576 million yuan, an increase of 78.7% over the same period last year. 2023Q3, the company achieved revenue of 1.656 billion yuan, a decrease of 4.9% over the same period last year, an increase of 1.1% over the same period last year; a net profit of 171 million yuan, an increase of 2.9% over the same period last year, a decrease of 31.9%; and a net profit of 176 million yuan, an increase of 19.4% over the same period last year and a decrease of 25.4% over the previous year.

Comments: the scale of production and sales continues to grow, Q3 gross profit margin increases ① volume compared with the previous month: the scale of production and sales continues to grow. Since 2021, the company's leading PQF production line has greatly increased the company's pipe production capacity, superimposed the growth of foreign trade market demand in the oil and gas industry, the recovery of demand for coal-fired boiler tubes, and the continuous growth of the company's production and sales scale.

② price: Q3 gross profit margin increased month-on-month. Benefiting from the high magnanimity of the oil and gas sector, the company's 2023Q1-Q3 gross profit margin increased by 5.73pct to 18.85% compared with the same period last year. 2023Q3, the company's gross profit margin of 20.29%, year-on-year increase in 5.23pct, month-on-month increase in 3pct.

Future core focus: advanced production capacity continues to release, product structure is expected to upgrade ① oil and gas and thermal power boiler tube demand to maintain high prosperity. In terms of oil and gas pipelines, the company will seize the opportunity of the recovery of the industry market, focus on foreign market development and certification, and actively expand overseas markets. Global oil and gas investment is expected to continue to grow in 2023 to further boost oil and gas pipeline demand. In terms of thermal power boiler tubes, in September 2022, the National Development and Reform Commission held a coal supply meeting that thermal power will start 165 million kilowatts in 2022-2023, and the company's demand for thermal power boiler tubes is expected to be boosted.

② 's advanced production capacity continues to be released. The company returned to the energy pipe mainline business and introduced the world's first up-to-date technology PQF continuous rolling mill designed and manufactured by Germany's West Mark, which was put into trial operation on June 18, 2021. At present, the company has a production capacity of 1 million tons of small and medium-sized special special pipes, supporting the continuous growth of production and sales under the background of good downstream demand.

③ expands its high-end business and creates new profit growth points. The company plans to build a precision pipe production line for new energy vehicles with an annual output of 50,000 tons. The total investment of the project is estimated to be 520 million yuan. It is estimated that after the project reaches production, the annual operating income will be 525 million yuan, the total annual profit will be 63.07 million yuan, the after-tax IRR of the project will be 11.65%, and the after-tax investment payback period is 9.33 years (including the construction period). At the same time, the company plans to build a new project with an annual output of 8500 tons of new energy and semiconductor special materials, and the investment in fixed assets construction is estimated to be 506 million yuan. It is estimated that after reaching production, the annual operating income is 790 million yuan, the total annual profit is 105 million yuan, the after-tax IRR of the project is 18.2%, and the investment payback period is 6.5 years (including the construction period).

Profit forecast and investment advice: we believe that, benefiting from the rising industry demand, the continuous release of new production capacity and the downward price of raw materials, the company's net profit for 2023-25 is expected to be 7.78, 720, 800 million yuan, respectively. The PE corresponding to the closing price on October 26 is 7x, 8x and 7x, maintaining the "recommended" rating.

Risk hint: raw material prices fluctuate sharply, downstream demand is lower than expected, and capacity release is not as expected.