Key points of investment:
Incident: Recently, the company released its quarterly report for '23, and its performance fell short of expectations. The first three quarters of 23 years achieved operating income of 21 billion dollars, YOY -3%, net profit of 1.2 billion yuan, YOY -66%, net profit of 1.1 billion dollars, and YOY -67%; of these, 23Q3 achieved operating income of 10.4 billion, YOY +40%, QOQ +33%, net income of 600 million, YOY -49%, QOQ -35%, net income of 500 million, YOY -46%, and QOQ -35%.
Fan business: Shipments are growing rapidly, and the sharp drop in prices has put pressure on profits. In terms of shipment volume, according to presentation materials on the company's official website, 23Q1-Q3 fans sell 6.9 GW, YOY +21%, of which land wind 4.9 GW, YOY +41%, sea wind 2.0 GW, and YOY -11%. Single Q3 sales are 3.5 GW, YOY/QOQ is +53%/+39% respectively. Among them, Lu Feng's external sales are 2.0 GW, YOY/QOQ is +52%/0%, Haifeng's external sales are 1.5 GW, and YOY/QOQ is +55%/192% respectively. Both Lu Feng and Haifeng's shipments increased significantly in Q3. In terms of price, according to estimates, the average shipping price for 23Q1-Q3 is 4,388 yuan/KW (tax included), YOY -33%. The main reasons for the sharp drop in prices are: 1) The large-scale fan scale continues to advance, and the price of fan tenders continues to decline. From January '22 to March 23, the average bid price of fans in the entire market fell from 2,070 yuan/KW to 1,607 yuan/KW, a drop of 22%. Low-cost fans gradually entered delivery; 2) Due to the shipping structure, 23Q1-Q3 sea breezes accounted for 29% of shipments, compared to 39% in the same period last year. In terms of profit, the gross margin of the 23Q1-Q3 fan manufacturing sector (including fan and accessories business and power plant product sales) was 13%, down 8.5 pct from the previous year, mainly due to falling fan prices.
Power plant business: Power generation revenue is growing steadily, and there are plenty of reserves for projects under construction. 23Q1-Q3, the company achieved power generation business revenue of 1.1 billion yuan, YOY +12%, gross profit margin 61%, an increase of 2.7 pct over the previous year. By the end of 23Q3, the company was operating a power plant of 1.6 GW, with a capacity of 3.9 GW under construction. The projects under construction have sufficient reserves. Through the rolling development model, it will help boost the company's fan product sales, smooth profits, and enhance the company's profit performance during the slump in industry profits. Furthermore, the company continues to strengthen its comprehensive competitive strength in the ocean wind field by actively deploying offshore wind power projects. In July, an agreement was reached with German chemical giant BASF to jointly build a 500MW offshore wind farm in Zhanjiang, Guangdong Province. It is expected to be put into operation in 25 years. In August, the Shanwei Honghaiwan Four Offshore Wind Power Demonstration Project was approved. According to the disclosure of the 22nd Annual Report, construction of the 4,500MW project in Qingzhou, Yangjiang and the 1,500MW project in Hainan East has also started one after another.
Profit forecast and investment advice: Considering industry demand and wind turbine cost reduction that falls short of expectations, we have lowered our profit expectations for the whole year. It is estimated that in 23-25, the company will achieve net profit of 35.4/43/5.1 billion (down 23%/27%/34%). The current stock price corresponding to 23-25 PE is 9/8/6 times. Considering that the company is a leader in offshore fans, it is expected to fully benefit from the high prosperity of domestic and foreign sea breezes, giving it a target price of 30.50 yuan/share (corresponding to 23/20X) to maintain the “buy” rating.
Risk warning: domestic installed demand falls short of expectations; risk of fluctuations in raw material prices, etc.