Core views:

Incident: The company announced a pre-increase in its 2023 annual results. It is expected to achieve net profit of 650 million yuan to 82 million yuan, an increase of 95.38% to 146.18% over the previous year; it is expected to achieve net profit without deduction of 380 million yuan to 540 million yuan, an increase of 250.58% to 398.19% over the previous year.

Comment: The 23-year performance has exceeded expectations. The shipping sector has recovered and the results of high-price orders have been implemented, and the profit inflection point has risen. According to the pre-performance increase announcement, in 2023, the company expects to achieve net profit of 650 million yuan to 82 million yuan, an increase of 95.38% to 146.48% over the previous year; according to estimates, the expected net profit to mother for the 23Q4 single quarter was 238 million yuan, up 476.82% to 888.39% year-on-year in 22Q4, and 90.78% to 226.91% month-on-month. On the revenue side, the recovery in the shipping industry ushered in a sharp rise in order volume and price. On the one hand, the company's diesel engine division subsidiary's sales scale expanded in 2023, orders increased dramatically, and the penetration rate of dual-fuel engines continued to increase; on the other hand, the price of marine low-speed engines, the main product in the diesel engine sector, increased, and the lack of flexibility in production capacity supply for marine low-speed engines raised the price center of marine low-speed engines. On the cost side, the increase in the company's orders led to a sharp increase in advance payments and a decrease in financial expenses; in addition, exchange earnings increased significantly over the same period last year. On the profit side, with the arrival of the product delivery cycle, the shipping industry has entered a performance realization period. As a manufacturer of supporting power systems for ships, the company's high-price orders led downstream shipping companies to be reflected in the reporting side, and profitability ushered in an upward inflection point. The company benefits from the replacement of old ships and the low-carbon transformation of shipping, leading to an increase in the penetration rate of high-value dual-fuel engines. The increase in the shipbuilding market share of Chinese shipbuilding companies drives the increase in internal equipment orders. Combined with high barriers to low-speed marine engine production capacity construction, the leading pattern is easy to maintain and difficult. Along with the implementation of the 23Q4 high-price order, the company may enter the performance side to accelerate the upward cycle.

Profit forecast and investment advice: The company's EPS for 23-25 is expected to be 0.34, 0.67, and 1.17 yuan/share, respectively. Considering the company's leading position in ship power, we maintained a reasonable value of 24.12 yuan/share and maintained an “overholding” rating.

Risk warning: risk in the shipping industry, risk in the automotive industry, risk of price fluctuations of major raw materials, risk of exchange rate fluctuations.