3Q23 performance is in line with our expectations

The company announced 3Q23 results: 1-3Q23 income / return net profit / deduction of non-net profit 117.44 + 6.8%, 42.4% and 23.8%, respectively, of which 3Q23 income / return net profit / deduction of non-net profit is 45.05 yuan, 17.3%, 33.3%, 12.2% and 0.8%, respectively, in line with our expectations.

Trend of development

The volume of polymer materials business is rising, and the profit center still has room to rise. We estimate that the income of the company's 1-3Q23 cable polymer materials is about 35-4 billion yuan, of which 3Q23 income is 12-1.3 billion yuan, which is basically the same as the previous month, mainly due to 1) polyethylene price reduction, transmission price reduction, 2) ultra-high pressure phase II production superimposed Huzhou factory capacity climbing to promote shipments growth. At the profit end, we estimate that the net profit of 1-3Q23 is about 300 million yuan, of which the profit of 3Q23 is about 100 million yuan. Considering the income of 1H23 demolition, we think that it may show an upward trend, mainly due to the stable production of the first phase of ultra-high pressure and the realization of full production in the second phase of ultra-high pressure, and the high-pressure output rate gradually increases. Looking forward to 4Q23, we believe that the high pressure output rate of the second phase of ultra-high pressure is expected to continue to increase, driving the profit center of polymer materials upward.

Charging operation support growth, optimistic about 4Q23 pile sales business-driven loss reduction. We estimate that the company's 1-3Q23 charging business revenue is about 300 million yuan, an increase of about 18% over the same period last year, of which 3Q23 revenue is about 100 million yuan, which is lower than the previous month, mainly due to 1) the operating side: 3Q23 is the peak season for charging demand, and the company achieves 192 million kilowatt-hours of charging capacity and + 24.0% month-on-month ratio, driving the growth of charging operating income. 2) pile sales: we estimate that 3Q23's business income from pile sales is about 30 million yuan, which may be affected by the seasonal delivery of downstream customers.

At the profit end, we estimate that the charging business of 1-3Q23 still shows a narrowing loss compared with the same period last year, among which 3Q23 may have a larger loss than the previous year due to the flat performance of the pile sales business. Looking back, we believe that 4Q23 is the peak season for charging pile delivery, and the company's pile sales business may benefit from growth and drive the charging business to continue to reduce losses.

The performance of the cable business is sound, and the profit contribution has increased. We estimate that the 1-3Q23 revenue of the cable business exceeds 7 billion yuan, an increase of about 3% over the same period last year, mainly due to the decline in copper prices. Profit side, we estimate that 1-3Q23 profit contribution of about 1.5-200 million yuan, of which 3Q23 profit may reach 0.8-100 million yuan, month-on-month growth, we think mainly due to 1) the decline in raw materials, price transmission lag brought about by the increase in earnings per ton, 2) shipments growth.

Government subsidies have increased profits and cost control has been maintained. The company's 3Q23 includes profit and loss with a government subsidy of about 19 million yuan, mainly from charging operation subsidies and subsidiary tax rebates; the expense rate during the 3Q23 period is 10.1%, which is lower than the same period last year, and the cost is well controlled.

Profit forecast and valuation

We keep our 24-year net profit forecast for 2023 18.0x/12.9xP/E unchanged, and maintain the target price of 14.0 yuan and outperform industry rating. The current stock price and target price correspond to 2023 and 2024 18.0x/12.9xP/E and Pmax E, respectively, with 32.7% upside space.

Risk

With the macroeconomic downturn, the number of new energy vehicles falls short of expectations.