The company is a heavy machinery manufacturer whose core business is large-scale nuclear power equipment and metallurgical equipment. The main products include nuclear power equipment, metallurgical equipment, heavy containers, large castings and forgings, special products, heavy forging equipment, mining equipment, etc. In a context where the nuclear power industry continues to recover and the metallurgical industry has ushered in new opportunities, the company's performance is expected to stop declining and pick up and achieve continuous growth by consolidating manufacturing capabilities, adhering to technological innovation, improving business structure, and leveraging superior business. We expect the company to achieve net profit of 150 million/260 million/4.2 billion yuan in 2023/24/25. Considering that the company is currently in a state of marginal profit, no target price will be given for the first time. We are optimistic about the company's long-term development prospects.

Company profile: Heavy machinery manufacturing enterprise with nuclear power and metallurgical equipment as the core. The company was founded in 1954, and listed on the Shanghai Stock Exchange A-share in 2010; it completed corporate restructuring in 2017 and has now developed into a national innovative pilot enterprise and a national high-tech enterprise. The main products include nuclear power equipment, metallurgical equipment, heavy containers, large castings and forgings, special products, heavy forging equipment, mining equipment, etc. The company achieved revenue of 23.89 billion yuan/YoY +3.3% in 2022, net profit of 100 million yuan/YoY -38.7%, profitability gradually improved, and gross margin increased since 2022, with 23H1 gross margin of 10.03%. The company's ability to control fees has improved markedly, R&D expenses have remained stable, and other fees have been reduced.

Industry analysis: (1) Nuclear power equipment industry: Nuclear power unit approval has resumed, and the nuclear power equipment industry chain has reached an inflection point in the economy. The power generation of nuclear power units is increasing year by year, and the share of commercial power generation continues to rise. It will reach 5% in 2022, and we expect it to account for 10% in 2030. After the Fukushima nuclear incident caused industry development to stagnate, there has been a recovery in recent years. According to the “China Nuclear Energy Development and Prospects” of the China Nuclear Energy Industry Association, during the “14th Five-Year Plan” period, China will maintain the approved pace of construction of 6-8 nuclear power units per year. As of July 4 this year, the country has approved 6 new units and started construction of 3 new units; (2) Metallurgical equipment industry: in the double carbon era, the metallurgical equipment industry ushered in a new direction of intelligent low-carbon development: China has become the world's largest metallurgical equipment market, with revenue of 13.4 billion yuan in 2021. The share of leading domestic enterprises has increased, and imports have basically been replaced. Downstream demand in the industry is tightening, and the government controls crude steel production. National policies have been introduced to promote the transformation of the industry to a low-carbon and clean direction, and to push metallurgical equipment to usher in a new trend of green development, intelligence, and digital transformation.

Company highlights: Relocating industry pillar enterprises, and injecting new vitality through technological innovation. The company has provided more than 3.5 million tons of machinery products for the construction of the national economy, developed more than 400 new products, and filled more than 400 technical gaps in domestic industrial products. It has not only greatly improved the manufacturing level of heavy machinery products in China, but also strongly supported the construction of national key projects. (1) The main business is progressing steadily, and technological innovation injects new vitality: complete equipment manufacturing and service technology for all parts of nuclear power equipment, metallurgical equipment, petrochemical equipment, forging equipment, engineering equipment, new materials business, etc., is an important supporting force for the development strategy of China's heavy machinery manufacturing industry; (2) Building an innovative system to achieve long-term sustainable development: the company has increased investment in scientific research, built a technological innovation system, provided innovation driving force for high-quality enterprise development, and achieved sustainable manufacturing development; (3) Actively building the “Belt and Road” to create an international development strategy: and Many internationally renowned manufacturers, such as Westmark and Mitsubishi Heavy Industries, have established cooperative relationships to create international development strategies, vigorously expand smelting and processing business in non-ferrous gold countries such as Indonesia's nickel and iron, and continue to spread to countries along the “Belt and Road”.

Risk factors: The slowdown in macroeconomic growth and policy adjustments affect the company's business; the sharp rise in raw material prices leads to cost increases; project risk causes additional costs and loss of reputation; the company's gross margin falls due to increased industry competition, threatening the company's position; industry changes and technological innovation may cause enterprises to face the risk of declining market share and competitiveness; the decline in the overseas economy has brought great uncertainty to the company's overseas business.

Profit forecast: The company is a heavy machinery manufacturer with large-scale nuclear power equipment and metallurgical equipment as the core business. The main products include nuclear power equipment, metallurgical equipment, heavy containers, large castings and forgings, special products, heavy forging equipment, mining equipment, etc. As the nuclear power industry continues to recover and the metallurgical industry ushered in new opportunities, the company continues to consolidate its manufacturing capabilities, adhere to technological innovation, improve its business structure, and make full use of its superior business. In the future, as the nuclear power equipment business continues to expand and the profitability of operation and service businesses gradually increases, performance is expected to stop falling and pick up, and achieve continuous growth. We estimate that the company's net profit for 2023/24/25 will be 1.5/26/4.2 billion yuan. Considering that the company is currently in a state of marginal profit, no target price will be given for the first time. We are optimistic about the company's long-term development prospects.