The company is a leading manufacturer of polymer materials in China, fully benefiting from the high prosperity of the sea. Since September, marginal catalytic activity of ocean breezes has continued to strengthen, and the certainty of installed capacity increased significantly in 2024-25. The company has obvious technical advantages in the field of high-voltage insulation materials for cables. As a leader in import substitution, with the steady release of production capacity, there is clear room for performance improvement. At the same time, the performance of the wire and cable and new energy sectors has improved significantly compared to the same period last year, and the sustainable development capacity is strong. We maintain the company's 2023-25 net profit forecast of 5.68/7.71/1,005 billion yuan, and the corresponding EPS forecast of 0.55/0.74/0.97 yuan. Referring to comparable company valuations, we gave the company 20xPE for the cable and polymer business and 3xPS for the new energy business in 2023, maintained the target price of 14 yuan, and maintained the “buy” rating.
The three main businesses are working together, and net profit for the first three quarters of 2023 is +42.39% year-on-year. In the first three quarters of 2023, the company achieved operating income of 11.744 billion yuan, +6.82% year-on-year; net profit of 478 million yuan, +42.39% year-on-year. Among them, the company achieved operating income of 4.05 billion yuan in 2023Q3 in a single quarter, +17.25%; realized net profit of 197 million yuan, +33.27% year-on-year; and realized net profit of 169 million yuan, +12.21% year-on-year. In the third quarter, the company's wire and cable and polymer materials sector shipments both increased year-on-year, and the operating efficiency of the new energy sector increased significantly, with a year-on-year loss of 28 million yuan. The three major sectors are working together, and the company's operations continue to improve.
Benefiting from product restructuring, the company's net interest rate rose slightly year-on-year. The company's gross margin for the 2023Q3 quarter was 13.24%, down 0.72 pct year on year and 0.72 pct month on month; net profit margin was 4.40%, up 0.54pct year on year, down 0.21 pct month on month. The profitability of ultra-high pressure polymer materials is significantly higher than that of similar medium and low voltage products. In the third quarter, the company's ultra-high voltage phase II project was officially fully produced after commissioning. We expect that with the completion of the commissioning of the company's production line and the increase in yield levels, the company's profitability is expected to further increase.
The marginal catalysis of ocean breezes has strengthened, and the company is a leader in the localization of polymer materials for wires and cables. Since September, marginal catalysts of ocean breezes have continued to strengthen, and the certainty of installed capacity increased significantly in 2024-25. High-voltage insulation materials for cables are still stuck in the neck. According to the company's 2022 annual report, the localization rate of high-voltage insulators is only 15%. The technical advantages of the company's products are obvious. As a leader in import substitution, in the context of the continuous expansion of demand for high-voltage cables and the localization of insulation materials, the company's polymer materials and cable sector profits are expected to increase steadily with the release of new production capacity.
New production capacity has been steadily released, and the logic for improving performance is clear. The company is actively expanding production capacity. According to the investor relations activity record sheet released by the company on November 2, the company currently has an annual production capacity of 40,000 tons of ultra-high voltage insulation materials, and a phase III project with an annual output of 20,000 tons is also under planning. At the same time, the company's plan to raise 1.7 billion yuan for the construction of production and R&D centers such as the northern base to issue shares to specific targets was inquired about by the Shenzhen Stock Exchange on August 21, and related work is progressing steadily. In the context of the continued rise in downstream demand, we expect that with the steady release of the company's production capacity, the logic for improving performance will be extremely clear.
Risk factors: raw material prices fluctuate greatly; progress in the localization and replacement of polymer cable materials falls short of expectations; market competition intensifies; the company's new production capacity construction and production progress falls short of expectations; the company's overseas business expansion falls short of expectations; uncertainty about the progress of fixed growth.
Profit forecasting, valuation and ratings: Since September, marginal catalysts of ocean breezes have continued to strengthen, and the certainty of installed capacity increased significantly in 2024-25. The company has obvious technical advantages in the field of high-voltage insulation materials for cables. As a leader in import substitution, performance is steadily released, and there is clear room for improvement with the steady release of production capacity. At the same time, the performance of the wire and cable and new energy sectors has improved significantly compared to the same period last year, and the sustainable development capacity is stable. We maintain the company's 2023-25 net profit forecast of 5.68/7.71/1,005 billion yuan, and the corresponding EPS forecast of 0.55/0.74/0.97 yuan, referring to the valuation levels of comparable companies (select Bofi Electric, Dongcai Technology, Zhongtian Technology, and Hengtong Optoelectronics as comparable companies in the cable and polymer business. Currently, the average PE for 2023 is 23x based on Choice's unanimous expectations; selected Teruide and Tonghe Technology as comparable companies in the new energy business, currently based on Choice's unanimous expectations