Events:

The company released its third quarter report in 2023. In the first three quarters of 2023, the company achieved operating income of 16.91 billion yuan, an increase of 15.77% over the same period last year, a net profit of 405 million yuan, an increase of 31.76% over the same period last year, and a net profit of 328 million yuan, an increase of 10.40% over the same period last year, with a gross profit margin of 6.32%, a decrease of 1.86pct over the same period last year, a net profit rate of 2.40% and an increase of 0.28pct over the same period last year.

2023Q3, the company realized operating income of 6.242 billion yuan, down 3.10% from the same period last year, and its net profit was 158 million yuan, an increase of 4107.86% over the same period last year.

Comment

The income grows steadily and the profit repair is obvious. On the revenue side, the company's 2023Q3 revenue declined slightly compared with the same period last year, with an increase of 2.21% compared with the previous year, or due to a slowdown in the construction progress of downstream projects, and submarine cable delivery was affected to a certain extent, but the overall revenue performance was stable, reflecting the resilience of the company's business development. At the profit end, 2023Q3 gross profit margin fell slightly compared with the same period last year, improving 1.47pct month-on-month, which is expected to be mainly due to the optimization of the structure of delivery orders. The expense rate during the period was 3.01%, a decrease of 0.29pct compared with the same period last year, of which the sales / management / R & D / financial expense rate was 1.39%, 0.69%, 0.44%, 0.48%, compared with the same period last year, which is expected to be mainly due to the continuous optimization of the company's cost management, reducing costs and increasing efficiency. The net interest rate was 2.53%, an increase in 2.41pct compared with the same period last year, and an increase in 1.00pct compared with the previous year. The net profit increased significantly, mainly due to the sharp fluctuation in the market price of copper, the main raw material, and the high loss of inventory impairment in the same period last year. The market price of copper was relatively stable during the reporting period, which was not affected by the fluctuation of raw material price.

Build a new submarine cable base to strengthen geographical advantages. The company announced that it plans to invest in the construction of Fanpingtan submarine cable base project in Jinjing Town, Pingtan Comprehensive Experimental Zone, Fujian Province, with a total investment of 2 billion yuan, of which the investment in fixed assets is not less than 1 billion yuan, and the overall construction period is 24 months.

We believe that the completion of the project base can greatly shorten the maritime transportation time of large-length submarine cables, which can not only save transportation costs, but also fully ensure the progress of the laying project, but also facilitate the maintenance of submarine cables in the future. At the same time, Pingtan has a superior location and convenient port transportation, so the construction of a submarine cable production base here is conducive to expanding the submarine cable demand of neighboring provinces and Southeast Asian Belt and Road Initiative countries in the future, and has a broad market prospect.

Profit forecast: as an excellent enterprise in the cable industry, the company is expected to fully benefit from downstream demand in the future. With the expansion of submarine cable business, the company is expected to further improve its market position. We expect the company to achieve a return net profit of 5.55 / 7.53 / 9.03 yuan from 2023 to 2025, corresponding to an 11 / 9 times of PE. Give 2024 earnings 15 times PE valuation, target price of 27 yuan, maintain the "buy" rating.

Risk hint: downstream demand is lower than expected, profit forecast and valuation judgment are not as expected.