Performance summary: In the first three quarters of 2023, the company achieved operating income of 10.98 billion yuan, an increase of 14.4% over the previous year; realized net profit of 360 million yuan, an increase of 35.8% over the previous year; and net profit after deducting 340 million yuan, an increase of 38% over the previous year. Among them, in the third quarter, the company achieved revenue of 4.18 billion yuan, an increase of 22.9% over the previous year; realized net profit of 120 million yuan, an increase of 35.3% over the previous year; and net profit after deducting non-return mother's net profit of 110 million yuan, an increase of 32% over the previous year.
Profitability has improved, and expense rates are well controlled. The company's gross margin/net margin for the first three quarters of 2023 was 11.3%/3.7%, up 0.1 pp/0.7 pp year on year; 2023Q3 gross margin/net profit margin was 11%/3.4%, up 0.5pp/0.6 pp year on year, mainly due to the scale effect brought about by the rapid growth in the sales scale of the flat electromagnetic wire business. In terms of expenses, the sales/management/finance expense ratio for the first three quarters of 2023 was 1.9%/4.6%/0.2% respectively, down 0.2 pp/0.3 pp/0.2 pp from the previous year, and the company's expense ratio was well controlled.
The high growth trend in the electromagnetic wire business continues, and high demand for power grids opens up room for growth. According to data from the Hunan Wire and Cable Association, in the first three quarters of 2023, the company's electromagnetic wire business achieved a 24% year-on-year increase in revenue, a 33% year-on-year increase in net profit, and 52,000 tons of flat electromagnetic wire shipments, an increase of 25% over the previous year, mainly due to power and energy restructuring, increased power investment, and increased demand for electromagnetic wires used in power transmission and transformation transformers. Domestic: As of the end of the third quarter of 2023, the company has participated in many UHV lines such as Zalut-Qingzhou, Yu'e, Fujian, Guangdong, Jingmen-Changsha-Wuhan, Chuan-Chongqing, Zhangbei, Longdong, and Ningxia. Profitability is expected to increase in the future with the expansion of electromagnetic wire business.
Overseas: In addition to providing cable and flat electromagnetic wire products for the “Belt and Road” project, the company is also cooperating with leading European and American transformer manufacturers, which is expected to continue to benefit from increased demand for overseas transformers. The development of overseas business is expected to open up a new growth curve for the company.
The release of production capacity consolidates the leading position, and the tram business is expected to increase. By the end of the third quarter of 2023, the first phase of the company's electromagnetic wire project for new energy vehicle motors has achieved the annual production capacity target of 7,000 tons; the second phase of the 2023Q2 project has been partially put into operation, with a total production capacity of 20,000 tons/year; the third phase of the project plans to add 104 specialized production lines for finished products and multi-process supporting units, which will be completed and put into operation in batches in 2024 and 2025, reaching a total production capacity of 50,000 tons/year. The company is the global leader in flat electromagnetic wires. With the release of production capacity, the tram business is expected to receive more orders. In addition, in the first three quarters of 2023, the company's cable business revenue increased 13% year on year, and net profit increased 45% year on year. The cable business has a wide range of downstream applications, covering smart grids, industrial equipment support, rail transit (high-speed rail, subway, maglev), and new energy vehicles (in-vehicle high-voltage cables, charging piles), etc., and the company's business scale is expected to continue to expand.
Profit forecasts and investment advice. The company's revenue for 2023-2025 is estimated to be 15.16 billion yuan, 18 billion yuan, and 20.52 billion yuan respectively. The net profit growth rate for the next three years will be 37%/30.6%/22.2%, respectively. The company's share of downstream renewable energy is gradually increasing, benefiting from high demand, and the company's electromagnetic wire business is expected to rise. Considering the company's leading position in the flat line of trams and the release of production capacity at the new base, the “hold” rating was maintained.
Risk warning: Increased competition in the power cable industry brings risk of falling cable product prices; risk of rising raw material prices; risk of falling demand for flat wire motors for new energy vehicles; risk that demand for flat wire motors for new energy vehicles will fall short of expectations; and risk of capacity building under construction and achieving production progress or falling short of expectations.