Event: The company released its three-quarter report for 2023. The first three quarters of 2023 achieved revenue of 940 million yuan, an increase of 34.0% over the previous year; net profit of 120 million yuan was realized, an increase of 26.1% over the previous year. Looking at Q3 in a single quarter, it achieved revenue of 340 million yuan, a year-on-year increase of 18.3%, a year-on-year increase of 1.8%; net profit of 43.126 million yuan, a year-on-year increase of 3.5%, a decrease of 14.8% over the previous year. Q3 The slowdown in growth in a single quarter did not affect the trend of high growth throughout the year.

The prosperity of the oil and gas industry continues to pick up, and the increase in offshore oil and gas development is expected to drive the growth of deep-sea business. In the third quarter of 2023, international oil prices will continue to rise. High oil prices will drive an increase in upstream capital expenditure, and the prosperity of the oil service industry is expected to continue to rise. According to the “China Ocean Energy Development Report” issued by CNOOC, global offshore oil and gas exploration and development investment will continue to increase in 2023. Global offshore oil and gas exploration and development investment is expected to increase to 177.44 billion US dollars, +6.1% year-on-year. The domestic offshore oil and gas engineering industry continues to benefit from the strong advancement of China's “seven-year action plan” to increase oil and gas storage and production, and the development of the industry is showing a good growth trend. In the field of deep-sea equipment, the company is the most important supplier of special parts for many of the world's largest oil and gas technology service companies in the Asia-Pacific region. The boom in offshore oil and gas engineering is expected to drive the company to continue to release high-value-added deep-sea products.

Gross margin continues to improve, and the decline in exchange earnings affects profitability. In the first three quarters of 2023, the company's gross margin was 23.3%, y-0.3 pp; Q3 single-quarter gross margin was 23.8%, +1.7 pp year over year, +0.7 pp month-on-month.

In the first three quarters of 2023, the company's period fee rate was 8.3%, +0.2pp, net interest rate was 13.3%, y-0.8 pp; Q3 in the single quarter, the period fee rate was 9.5%, +3.9pp, +4.9pp, month-on-month, net interest rate was 12.9%, -1.8pp, month-on-month, and -2.5pp, mainly due to a year-on-year decline in exchange earnings that eroded net profit in the third quarter.

The fund-raising project is progressing smoothly, and the new product is expected to create the company's second growth pole. The 350MN multi-directional die-forging hydraulic press of the company's fund-raising project can be used for molding and manufacturing key components of equipment in special working conditions such as deep sea, fracturing, etc. It will have greater technological and cost advantages in batch manufacturing. At the same time, it will also effectively enhance the company's product quality and further enhance the company's market competitiveness and market share. Currently, the company's fund-raising projects are progressing steadily. Most of the equipment has already entered the factory, and the second half of the year will enter the installation and commissioning stage. After the production line is completed, it will form a large-scale manufacturing capacity for high-end valves and piping components, further increasing the company's product categories covered in the oil and gas field. High-end valves are expected to become the company's second growth curve.

Profit forecasts and investment advice. It is estimated that the company's net profit from 2023-2025 will be 1.8, 2.6, and 330 million yuan respectively, corresponding to EPS of 0.95, 1.32, and 1.69 yuan, corresponding to the current stock price PE, 28, 20, and 16 times, and the compound growth rate of net profit for the next three years will be 39%. The company is a leader in special parts for oil and gas equipment in China. It gave the company a target PE of 30 times in 2024, with a target price of 39.60 yuan for 6 months, coverage for the first time, and a “buy” rating.

Risk warning: the risk of fluctuations in international oil prices, the risk of exchange rate fluctuations, the risk of fluctuations in raw material prices, and the risk that the commissioning of fund-raising projects falls short of expectations.