Incidents:

The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 1,555 billion yuan, +32.85%; net profit of 65 million yuan, -72.97%; net profit after deducting net profit of 47 million yuan, -45.87% year-on-year. The gross margin for the first three quarters of 2023 reached 12.42%, -1.70pcts; net profit margin was 4.36%, y-16.56pcts.

In 2023, Q3 achieved operating income of 516 million yuan, -0.69%; net profit of the mother - 70 million yuan, -238.97%; net profit after deduction of net profit of 70 million yuan, -253.26% of the same period last year. The gross profit margin for the Q3 quarter of 2023 was 6.57%, y-10.37pcts; the net profit margin was -13.54%, y--23.56pcts.

Comment:

Short-term performance is under pressure. In 2023, the company's net profit declined year-on-year and month-on-month in Q3. The main reasons are:

1) Affected by the long settlement cycle for completed projects during the “rush wave” period, 73.411,900 yuan was added for bad debts in the third quarter of 2023; 2) The overall construction of the new offshore wind farm downstream of Q3 in 2023 was still slow. The company was greatly affected by downstream development progress, delivery conditions fell short of expectations, and profit scale declined; 3) The offshore wind farm in which the company participated and invested due to poor wind speed conditions, current power generation capacity was low, and investment income declined sharply compared to last year; 4) The depreciation of the company's assets increased in the first three quarters of 2023, unsaturated production capacity utilization Gross margin declined due to a combination of factors such as intense competition in the industry.

I am optimistic about the subsequent recovery of construction in the sea breeze industry. Since October 2023, with the gradual restart of the Jiangsu Sea Breeze Project and the implementation of the results of the Guangdong Provincial Sea Area Competition, the installation progress of Haifeng is expected to accelerate. The total capacity of the “14th Five-Year Plan” offshore wind power plan for domestic coastal provinces and cities is close to 60 GW. Up to now, it is estimated that the scale of sea wind grid connection in the first three years of the “14th Five-Year Plan” will be around 27GW. Demand for more than 30 GW grid-connected installations has not been released, and project reserves are abundant. It is expected that large-scale construction will be ushered in 2024-2025, and the industry prospects are broad.

Profit forecast and investment recommendations: The company's net profit for 2023-2025 is estimated to be 1.20/7.21/1,227 billion yuan, up -41.5%/501.6%/70.1% year on year, corresponding to the closing price of PE on November 3, 2023, 125.8/20.9/12.3 times, respectively, maintaining the “increased holdings” rating.

Risk warning: Sea Breeze did not start construction as expected, raw material prices continued to rise, and production capacity was not as fast as expected.