Key points of investment:

On the evening of October 26, Xinqianglian revealed its report for the third quarter of 2023. In the first three quarters of 2023, Xinqianglian achieved operating income of 2,092 billion yuan, an increase of 7.12% over the previous year; net profit attributable to shareholders of listed companies was 340 million yuan, an increase of 1.75% over the previous year.

There was rapid growth in the third quarter, with a 32.95% increase in non-net profit in a single quarter. The 2023 three-quarter report achieved operating income of 2,092 billion yuan, an increase of 7.12% over the previous year; net profit of 340 million yuan, an increase of 1.75% over the previous year, and net profit after deduction of 241 million yuan, an increase of -27.37% over the previous year.

Among them, in the third quarter, Xinqianglian's operating income was 877 million yuan, up 27.07% year on year; net profit was 239 million yuan, up 161.75% year on year, minus non-net profit of 118 million yuan, up 32.95% year on year.

The company's performance growth in the third quarter accelerated markedly. The main reason is that wind power installations began to accelerate markedly in the third quarter, compounded by the gradual introduction of some of the company's new products into the market, and the company's quarterly performance increased markedly in the third quarter. Second, the company achieved investment income of 142 million dollars in the third quarter, significantly increasing its performance in a single quarter.

Gross margin bottomed out and rebounded, and the company's profitability gradually recovered

The company's gross profit margin for the third quarter of 2023 was 26.64%, down 2.45 percentage points from the previous year, and up 0.71 percentage points from 2023H1.

The company's net profit margin for the third quarter of 2023 was 16.97%, down 0.59 percentage points from the previous year, and up 7.9 percentage points from 2023H1. The main reason is 1: the month-on-month improvement in gross margin increased the net profit margin; 2:

The third quarter received large investment income in a single quarter, significantly increasing the net interest rate.

The weighted ROE of the company for the third quarter of 2023 was 8.44%, down 0.9 percentage points from the previous year.

Leading domestic production of wind power bearings, benefiting from improving wind power demand in the medium to long term and promoting component localization Wind power bearings are one of the products with high technical content and the lowest localization rate among wind power equipment components. As wind power tender prices continue to decline, demand for localization of components continues to rise, the localization rate of yaw propeller bearings has reached a high level, and the localization rate of more technically difficult spindle bearings and gearbox bearings is still low. There is obvious room for improvement.

The company has been rooted in slewing bearings for many years and has always been the vanguard in the field of wind power bearing localization. The company is at the forefront of the industry in products such as large megawatt three-row cylindrical roller generator main bearings, double row conical roller main bearings, single-row conical roller main bearings, and self-aligning roller main bearings. Currently, customer demand is still rushing, production lines, equipment, and process refinement, and small-batch verification. In the future, with the promotion of large-scale mass production, it is expected to bring new growth to the company's wind power business.

In addition, in 2022, the company issued 1.21 billion convertible bonds, of which 1,113 billion was invested in gearbox bearings and precision parts projects. The interim report revealed that the progress of the gearbox bearing and precision parts project had reached 51.12%. On August 29, the company disclosed that the investor relations activity record sheet showed that the gearbox bearing development and design had been completed. Currently, equipment installation and commissioning are being carried out, and sample processing and production can begin later. Overall, it is expected that it will be faster than initially planned. The localization rate of spindle bearings and gearbox bearing products is low. The company's efforts to make these two new products are expected to fully benefit from the full localization of wind power bearings.

The installation of wind power has accelerated markedly. With the launch of the Ocean Wind Project, the industry is expected to usher in a recovery Wind power is an important part of clean energy and one of the core footholds of the double carbon policy. In the first two years of the 14th Five-Year Plan, the installed capacity was far below expectations due to the decline in wind power subsidies and the rush to install. It is expected that wind power installations in the second half of the 14th Five-Year Plan period will begin supplementary growth. According to GWEC forecasts, the average number of new wind power installations per year 2023-2025 will reach more than 70 GW, a significant increase over the past two years.

From January to September 2023, China's wind power installed capacity was about 400 million kilowatts, a year-on-year increase of 15.1%, accounting for 14.34% of the total installed power generation capacity. In January-September, the country's wind power generation capacity was 402.5 billion hours, an increase of 28.4% over the previous year, accounting for 6.63% of the total power generation. In the medium to long term, wind power still has a lot of room for growth.

From January to September 2023, 33.48 GW of wind power was installed, an increase of 74.01% over the previous year, of which 4.56 GW was added in September, an increase of 47.1% over the previous year. The wind power from January to September 2023 used 1,665 hours of wind power per hour, an increase of 49 hours over the same period last year.

Beginning in the second and third quarter, wind power installations accelerated markedly. In the second half of the year, bidding for the sea breeze project began gradually. Following the public approval of the Jiangsu Dafeng & Sheyang project and the completion of the Guangdong 7GW provincial management +16 GW national management sea area project competition, there were favorable reports of sea breeze construction in coastal regions such as Zhejiang and Fujian. The launch of offshore wind projects in coastal areas has boosted the recovery of ocean wind construction, bringing obvious changes in expectations to the industry.

Profit forecasting and valuation

The company is a leading domestic wind power bearing enterprise, benefiting from strong demand for wind power installations and large future market space. At the same time, the company's spindle bearing and gearbox bearing business is being localized and replaced, and the business is poised to go ahead.

We maintain our forecast that the company's revenue from 2023 to 2025 is 2,846 billion, 3,537 billion, and 4.232 billion respectively. As the performance for the third quarter of 2023 exceeded expectations and wind power installations accelerated, we raised net profit from 2023-2025 to 456 million, 536 million, and 672 million, respectively. The corresponding PE was 28.47X, 24.19X, and 19.31X, respectively. Considering that the company's three-quarter report exceeded expectations, there is plenty of room for localization in the future wind power spindle bearing and gearbox bearing business, which has good growth potential. At the same time, the restart of the Haifeng project has brought significant changes to market expectations, raising the company's rating to a “buy” rating.

Risk warning: 1: wind power installation demand falls short of expectations; 2: the impact of wind power technology path changes on bearing demand; 3: market competition intensifies, gross margin falls; 4: raw material prices are rising.