A veteran of the wire and cable industry, opening a new chapter in developing the submarine cable business. The company was founded in 1994 and is a leader in the domestic wire and cable industry. The company used sea breezes to rush into the submarine cable market in 2021, achieved a breakthrough in the delivery of 220KV large-length cable orders in 2023, and invested in the construction of a new base in Pingtan, Fujian, to increase the layout of the submarine cable business. In terms of equity, the company is a family business that focuses on equity incentives to bind employees' interests. At the same time, executives have also increased their holdings many times, demonstrating their confidence in the company's future development. On the financial side, 23Q1-Q3 revenue/net profit of the parent increased by 16%/31% respectively. Revenue increased steadily, and profitability continued to recover.

Offshore wind power has arrived, and the submarine cable industry has fully benefited. The 14th Five-Year Plan Sea Wind installation target planned by various provinces exceeds 50 GW. Currently, the completion rate is less than half, and it is expected that the next two years will usher in a small peak in installed capacity. The submarine cable industry has anti-deflation properties and will fully benefit from high ocean breezes. We expect that in the next few years, with the rapid increase in the installed volume of sea breezes and the development of trends such as large-scale wind fields and deep-sea diversification, the size of the submarine cable market will expand rapidly. In 2022-2025, the submarine cable market grew from 5.1 billion to 22.4 billion, the 3-year CAGR was 44%, and the usage of a single GW also increased from 1.0 billion to 1.4 billion.

The submarine cable business is being deployed at an accelerated pace, and the second growth curve is poised to unfold. On October 27, 2023, the company announced an investment of 2 billion dollars to build a joint venture with the Pingtan government to build the Fujian Pingtan Cable Base. Fujian's sea wind resources are excellent. Projects have been progressing actively since the price, and the project stock is rich in reserves. However, only the local solar cable has production capacity under construction in Dongshan, Zhangzhou, and the competition pattern is excellent. This layout of the company will establish the advantages of a localized layout in Fujian, and is expected to fully benefit from the large demand for submarine cables brought about by the construction of local sea breezes projects. Furthermore, it is expected that affordable projects based in Shanghai will be launched one after another, and that deep-sea projects under the national administration of maritime areas are also being promoted quite actively. The company, as the only local submarine cable manufacturer, will be the first to benefit.

Land cable fundamentals are stable, and the company benefits from industry integration as a leader. Wires and cables are closely related to national economic development. The industry has a trillion dollar market space. Among them, the market demand for power cables and cables for electrical equipment is the greatest. The current competitive pattern is quite scattered, and there is a lot of room for industry integration against overseas markets. The company is a leader in the land cable industry. It has deep accumulation in products, brands and channels, and will fully benefit from industry integration. With the steady expansion of production capacity, the company's land cable business is also expected to maintain a steady growth trend in the next few years.

Profit forecast and investment advice: We expect the company's net profit for 23-25 to be 5.6/79/980 million yuan, corresponding to EPS of 1.34/1.88/2.35 yuan/share, respectively, with a year-on-year increase of 53%/41%/25%, respectively, and a 3-year CAGR of 39%. Considering that the company's submarine cable business is in the 0-1 stage, as demand for offshore wind power installations increases rapidly, it can contribute to greater profit elasticity. The company was given 15 times PE in 2024, corresponding to the target price of 28.26 yuan/share, coverage for the first time, and a “buy” rating.

Risk warning: the risk of the company's new base falling short of expectations; risk of offshore wind power installation falling short of expectations; risk of increased competition in the industry; risk of rising raw material prices.