Dawson Co., Ltd. disclosed its 2023 three-quarter report. Losses in the oil and gas drilling business dragged down performance. 2023Q1-Q3 achieved revenue of 1.52 billion yuan, +4% year-on-year; net profit of 607.40 billion yuan, -4% year-on-year; net profit after deduction of 475.96 billion yuan, -22% year-on-year. Among them, Q3 achieved revenue of 4.6 billion yuan, or -31% over the previous year, mainly due to the company's continued divestment of inefficient assets, and Hongtian's partial revenue confirmation was delayed until Q4. In 2023Q3, the company achieved net profit of 11.258 million yuan, -65% over month; net profit after deducting non-return net profit of 11.315 million yuan, -67% month-on-month, mainly due to losses in the oil and gas drilling business in the current period and the impairment of some inefficient assets.

The comprehensive gross profit margin of the 2023Q1-Q3 company was 21.9%, +3.8pct; the net profit margin was 7.4%, +1.4pct year-on-year. Among them, Q3 gross profit margin was 20.2%, -3.5pct month-on-month; net profit margin was 2.7%, -7.1pct month-on-month.

The business structure continues to be optimized, and contract liabilities highlight growth potential. In August 2023, the company announced that it had completed the acquisition of 30% of the shares of the holding subsidiary Hongtian Technology and completed the registration of industrial and commercial changes, and expanded the scope of the list to 81%. In October, the company announced that it plans to sell 100% of the shares of its wholly-owned subsidiary Dawson Limited for 323 million yuan, further divestment of inefficient assets and transformation into a high-end electrolytic copper foil equipment manufacturing business. The 2023Q3 company's contract debt was about 1.16 billion yuan, +83% over the same period last year and an increase of 9% over 23H1. The full number of orders in hand lays the foundation for certainty about future performance. As oil and gas drilling equipment assets are gradually cleared and orders from Hongtian Technology are released one after another, the company's performance is expected to resume rapid growth.

The implementation of composite fluid collector all-in-one equipment has accelerated, and we are optimistic about 2024's performance growth. Since the company first released the “vacuum magnetron sputtering all-in-one machine” in April, the first batch of composite copper foil all-in-one machine equipment orders were officially placed in July, with an order amount of 70 million yuan. In September, the company's composite fluid collector all-in-one equipment “winding magnetron sputtering coating machine”, “winding magnetron sputtering evaporation composite coating machine” (can be plated with copper and aluminum on both sides), and “coil evaporation coating machine” (can be aluminum plated on both sides) once again won a new order of 184 million yuan from NORD shares, a leading lithium battery copper foil company. Compared with the first batch of orders, it has achieved a breakthrough in customer popularity and order size. Up to now, the total number of orders for composite fluid collection equipment has exceeded 250 million yuan, and revenue is expected to be confirmed significantly in 2024.

The “all-in-one sputtering and evaporation machine” has obvious cost reduction advantages, and is actively expanding the production capacity of one-step equipment to guarantee delivery. The company's “Vacuum Magnetron Sputtering and Evaporator” (can be copper-plated and aluminum-plated on both sides) is expected to be officially released by the end of this year. Its design and operation speed is 12-15 m/min, and the yield is over 90%. It is expected that the production cost of composite copper foil will be greatly reduced and the pace of industrialization of composite fluid collectors will be accelerated. In terms of production capacity, the company has previously announced the investment and production capacity plans for the Nantong plant. According to current progress, the production capacity of 20/100 units is planned separately for 2023/2024. After the new plant is put into operation in 2025, the production capacity of the company's composite copper and aluminum foil all-in-one machine equipment will be greatly expanded. We are optimistic about the increase in performance brought to the company by the volume of composite fluid collection equipment.

Profit forecast: The company's total operating income from 2023-2025 is expected to be 29.4/30.0/3.7 billion yuan, up 35%/2%/23% year on year; net profit is 2.0/4.1/69 billion yuan, respectively, up 88%/104%/70% year on year. Using the closing price of November 2, 2023 as a benchmark, the 2023-2025 Dawson PE was 28.4x/13.9/8.2x, respectively. Maintain a “buy” rating.

Risk warning: The industrialization of composite copper foil has fallen short of expectations, the promotion of new products has fallen short of expectations, and the progress of business sales has fallen short of expectations.