Events:

The company released its performance report for the first three quarters of 2023. In the first three quarters, the company realized operating income of 5.115 billion yuan, an increase of 13.95% over the same period last year; net profit of 622 million yuan, an increase of 79.53% over the same period last year; and non-net profit of 576 million yuan, an increase of 78.71% over the same period last year. Of this total, the operating income of Q3 Company reached 1.656 billion yuan, down 4.95% from the same period last year. The net profit of returning to the mother was 171 million yuan, an increase of 2.87% over the same period last year, and the non-net profit was 176 million yuan, an increase of 19.39% over the same period last year.

Production and sales continued to rise, driving the company's performance growth. The company adopts the production mode of "fixed production by sales", benefiting from the continuous prosperity of the industry and the growth of production and sales scale in the first three quarters. In terms of production capacity, the production capacity of the company's PQF production line continues to release; in terms of sales, the industry demand continues to grow, the demand for superimposed coal-fired boiler tubes picks up, and the company's sales grow further.

The contract quality of the company has improved significantly, the production capacity of high-end new products has been released, and the gross profit margin has reached a record high in a single quarter.

2023Q3 achieved a gross sales margin of 20.3%, an increase of 5.2pct over the same period last year, an all-time high for the third quarter of three years. Mainly benefit from 1) the booming demand of the industry, the improvement of the company's capacity utilization rate, which leads to the dilution of fixed costs; 2) the company continues to expand new products with high gross profit margin, including high-end tubing, casing, pipeline pipe, variety pipe and boiler tube; 3) continue to expand the market and improve the quality of the contract.

Continue to optimize the product structure, increase the proportion of high value-added and high-tech products, and further improve profitability. The company announced that it intends to invest in new energy and semiconductor specialty projects with an annual output of 8500 tons to achieve efficient coordination and high-end extension with existing products; Changzhou Changbao Jing Special Steel Pipe Co., Ltd. plans to build a precision pipe production line for new energy vehicles with an annual output of 50,000 tons to further optimize the product structure.

Companies have benefited from the volatile operation of high global oil prices and the continued rise in upstream capital expenditure. International oil prices remain high and the number of oil well drilling rigs in the world is increasing. In the context of recent changes in international forms and geopolitical conflicts in the Middle East and Russia, it is of great significance to ensure oil and gas supply and energy security. Three barrels of oil reserves and production plans may be intensified. CNOOC will increase its annual capital expenditure by 20% to 1200-130 billion yuan (previously 1000-110 billion yuan) in its third quarterly report in 2023. The company's demand for oil well pipes and supporting products is expected to benefit from an increase in upstream capital expenditure, and orders and performance are expected to grow further.

Profit forecast: the company's net profit from 2023 to 2025 is expected to be 7.69 / 8.18 / 895 million yuan respectively, with year-on-year growth of + 63.32% / + 6.37% / + 9.34%, corresponding to 7x/ 7x/6x respectively, covering for the first time and given a "buy" rating.

Risk tips: slower orders, lower-than-expected upstream capital expenditure, lower-than-expected demand, performance forecasts and valuation judgments fall short of expectations.