Core views:

The company released the 2023 three-quarter report, and the performance is in line with expectations. 23Q1-3 had revenue of 936 million yuan, up 34.1% year on year; net profit was 124 million yuan, up 26.1% year on year, and net profit margin of 13.3%. 23Q3 had revenue of 336 million yuan, up 18.3% year on year; net profit for Q3 was 43 million yuan, up 3.5% year on year. The performance was in line with expectations.

The share of deep-sea business continues to grow, driving the company's profitability to increase. According to the company's three-quarter report, 23Q3 gross profit margin was 23.78%, year-on-year +1.74pct. According to the company's investor relations activity records from November 8 to November 10, 2023, the manufacturing capacity of key components of the company's 70MN deep-sea oil and gas underwater production system was continuously released, driving the optimization of the company's revenue structure and increased profitability.

Deep-sea oil and gas capital development continues to expand, and the oil service industry is booming. 23Q3 International oil prices continued to rise, and upstream capital expenditure increased. According to the third quarterly report of global oil service leader TechnipFMC, the company's deep-sea business (subsea) on-hand orders reached 12.07 billion US dollars, an increase of 59% over the previous year.

Of these, orders to be delivered in 24/25 reached 4.5 billion US dollars/6.5 billion US dollars, respectively. The improving boom in the oil service industry is expected to drive the company's high-margin special parts performance in the deep-sea sector.

The multi-directional die forging production capacity for the fund-raising project has been installed, and the second growth curve is expected to expand. According to the company's investor relations activity records, the company's fund-raising projects are suitable for special parts products with complex product shapes, relatively small weight of single products, and uniform pressure bearing capacity, and have cost and efficiency advantages in mass production. At present, the main equipment has been installed, and the control system and related supporting equipment are progressing in an orderly manner. The company's competitiveness and market share are expected to further increase after the production line is completed.

Profit forecasts and investment advice. We expect the company's net profit from 2023-2025 to be 1.81/2.35/314 million yuan, respectively, and the corresponding P/E is 24.7/19.0/14.2 times, respectively. Considering that the industry is clearly booming and the company's production capacity is gradually on the right track, the company is in a stage of rapid performance growth. We gave the company 30xPE in 2023, corresponding to a reasonable value of 27.9 yuan/share. Maintain a “buy” rating.

The risk of falling oil and gas prices; the risk of increased competition in the industry; the risk of rising raw material costs, etc.