What happened: the company released its third-quarter report in 2023. In the first three quarters of 2023, the company achieved operating income of 5.115 billion yuan, an increase of 13.95% over the same period last year; a net profit of 622 million yuan, an increase of 79.53% over the same period last year; and a net profit of 576 million yuan, excluding non-recurrent profit and loss, belonging to a listed company, an increase of 78.71% over the same period last year.

Net profit fell in the third quarter compared with the previous quarter, and the gross profit margin on sales continued to improve. The company's 2023Q3 realized a net profit of 171 million yuan, an increase of 2.87% over the same period last year, a decrease of 32.14% from the previous month, and a net profit of 176 million yuan from the previous year, an increase of 19.39% over the same period last year and a decrease of 25.42% from the previous month. The company's 2022Q4-2023Q3 sales gross profit margin is 19.79%, 18.93%, 17.29% and 20.29% respectively, and the quarterly net sales profit margin is 7.10%, 11.05%, 15.69% and 10.82% respectively compared with the previous month, but the net profit margin is weaker, and the increase in 2023Q3 financial expenses is obvious.

The yield increment space is large, and the variety structure is further optimized. In 2022, the finished product of the company's PQF production line will reach 300000 tons. According to the estimate of 100% capacity utilization, there is still 34.7% incremental space for the existing production line. According to the announcement, the company plans to invest 8500 tons of new energy and semiconductor specialty materials projects to promote the increase in the proportion of high value-added and high-tech products. Changzhou Changbao Jingte Steel Pipe Co., Ltd., a subsidiary of Changzhou, plans to invest in the construction of a precision pipe project for 50,000 tons of new energy vehicles, with further optimization of product structure and continuous improvement of profitability.

With the improvement of downstream prosperity, demand is expected to continue to expand. In 2022, the capital expenditure in the exploration and development of PetroChina, China Petroleum & Chemical Corp and CNOOC increased by 21.3%. At the same time, the number of global oil well drilling rigs increased, which is good for the company's demand for oil well pipes and supporting products. In 2022, the National Development and Reform Commission proposed that thermal power will start 165 million kilowatts in 2022-2023, and the demand for boiler tubes in domestic power stations will be enhanced. Due to the influence of the pattern of energy supply in the international market, the demand for coal and electricity in the European market will also restart. The follow-up thermal power industry is expected to enter a booming state, and boiler tube products are expected to usher in the stage of volume and price rise.

Investment advice. The company focuses on small and medium caliber special pipe manufacturing, production growth and structural improvement at the same time, downstream demand continues to improve, exchange factors and cost reduction effectively support its profit release.

We estimate that the company's net profit from 2023 to 2025 will be 780 million yuan, 880 million yuan and 920 million yuan respectively, corresponding to 7.1,6.3,6.1 times of PE, maintaining the "buy" rating.

Risk hint: upstream raw material prices have risen sharply, downstream demand is lower than expected, and there is uncertainty to increase production in the new production line.