Matters:

The company released the report for the third quarter of 2023. In the first three quarters of 23 years, it achieved cumulative revenue of 1.52 billion yuan, net profit of 0.6 billion yuan, net profit of 0.6 billion yuan, net profit of 0.5 billion yuan, net profit of 0.5 billion dollars, net profit of non-return of net profit of 500 million yuan, -38%, month-on-month, net profit of 0.1 billion, -77%, and -67% month-on-month in the first three quarters.

Commentary:

Compared to last year, the slump in the traditional oil and gas drilling equipment business has put pressure on performance in the short term. The company's oil and gas drilling equipment business was still profitable in '22. At the same time, it completed the divestment of some subsidiaries such as Chengdu Dawson and Dawson in the US in '22 (still partially merged in '22). The remaining oil and gas drilling equipment business performance declined in '23 due to the industry downturn. Therefore, in terms of finance, the company's Q3 revenue and profit declined significantly year-on-year. The company announced in October that it plans to sell 100% of the shares of Suzhou Dawson Drilling Equipment Co., Ltd., and will continue to promote the divestment of inefficient assets and the transformation to high-end new energy equipment.

Orders for electrolytic copper foil equipment are full, but the Q3 profit contribution was limited due to the receipt cycle. The company's orders for electrolytic copper foil equipment are full. As of the end of Q3, the company's contract debt was 1.16 billion yuan, an increase of 100 million yuan over the previous month, and inventory of 1.5 billion yuan, an increase of 100 million over the previous month. We believe that the progress of downstream customer construction mainly affects the pace of the company's revenue confirmation in the short term. According to industry practice, it is expected that the company's electrolytic copper foil equipment is expected to confirm significant revenue in Q4.

With the release of customer proofing test results, intended orders for vacuum coating equipment are expected to accelerate transformation. Hongtian Technology, a subsidiary of the company, released the first dry-method composite copper foil magnetron sputtering all-in-one machine in April, signed the first batch of order contracts with Shenzhen Hanli in July, and received 180 million orders from major customer NORD shares in September. The dry one-step process of Hongtian Technology Equipment has the advantages of high yield and good product performance. We expect that with the company's first batch of equipment proofing test results, the company's existing intended orders will be quickly converted into formal orders.

Investment suggestions: The company is a leader in electrolytic copper foil equipment, with full orders, and short-term performance fluctuates due to revenue recognition cycles, but our expectations for the company remain unchanged throughout the year; furthermore, the company's composite fluid collection vacuum coating equipment has been promoted smoothly, which is expected to create the company's second growth curve. We estimate that the company's net profit for 23-25 will reach 2.0/5.1/680 million yuan, corresponding to EPS of 0.94/2.45/3.27 yuan, respectively. Referring to comparable companies, the 24-year performance is 18 times PE, and the corresponding target price will reach 44.1 yuan, maintaining the “strong promotion” rating.

Risk warning: demand for downstream production expansion falls short of expectations; new product development or promotion progress falls short of expectations; raw material price increases weaken profit levels; risk of a shortage of core components.