Introduction to this report:

The company's performance for the third quarter of 2023 increased year-on-year, and profitability increased markedly. With the promotion of offshore wind power projects and other catalysts, the performance for the fourth quarter of 2023 is expected to continue to improve.

Key points of investment:

Maintain the “Overweight” rating. According to the company announcement, the company's overall performance in the first three quarters of 2023 was steady. Among them, Q3 revenue increased month-on-month and profitability increased year-on-year. The company's Q4 performance is expected to continue to improve. Maintain the company's profit forecast for 2023-2025: EPS is 1.74 yuan, 2.80 yuan, and 3.40 yuan, maintain the company's target price of 44.85 yuan, and maintain the “increase in holdings” rating.

The company's performance in the third quarter increased month-on-month. The company's revenue for the Q3 quarter of 2023 was 538 million yuan, -5.67%, +49.16%; net profit of 126 million yuan, +7.70%, +25.59%; net profit after deducting non-return net profit of 121 million yuan, +8.52% over the previous year, +29.35% over the previous month.

The increase in revenue is mainly due to the fact that the Q3 wind power industry has entered the traditional peak installation season, and demand for forging spindles has increased along with it, which is in line with expectations overall.

The construction progress of the Sea Breeze project is speeding up, and the two benefits are expected to rise after the fourth quarter. The company's gross profit margin for Q3 sales in 2023 was 35.49%, +5.62 y/y, -1.25pct; net sales profit margin was 23.46%, +2.92 yoy, -4.40pct month-on-month. Profitability improved year-on-year thanks to raw material price reductions and the company's cost reduction and efficiency measures, but due to Haifeng's installed capacity in the first half of 2023 falling short of expectations, the company's production capacity was slow to release, and profitability fluctuated month-on-month. Since September 2023, domestic sea wind construction has begun to accelerate. The installed capacity is expected to drive the increase in spindle demand, and the two benefits are expected to rise simultaneously after Q4 in 2023.

Catalyst: Since September 2023, a number of large-scale offshore wind power projects in Jiangsu, Guangdong and other regions have been approved, industry resistance has gradually been lifted, and project construction has begun to advance substantially.

Risk warning: downstream demand release falls short of expectations, risk of increased competition within the industry, risk of upstream raw material price increases, foreign exchange policy and exchange rate risk