Key points of investment:
The wind power spindle industry is the absolute leader, and it is determined to increase the production capacity of large megawatts of castings to open up a second growth curve. The company is the world's TOP1 manufacturer in the wind power spindle industry. In 2022, it will increase the production capacity of large megawatts of castings to create a second growth curve. According to the disclosure in the mid-year report in '23, the decline in raw material prices caused the company's gross margin to be restored to 35%, an increase of 8 pct over the previous year. At the same time, Dongying's large megawatt casting production capacity has already received small-batch orders, and the casting business is about to expand.
Demand for wind power spindles is booming, and the industry competition pattern is excellent. In the context of carbon neutrality, the overall demand for wind power is more optimistic. Offshore wind power has ushered in a high boom resonance cycle at home and abroad, and installed capacity is expected to usher in explosive growth in the next few years. We estimate that the 23-25 spindle market space was 65/75/8.3 billion, and the 3-year CAGR was 16%, of which forged spindles were 44/49/5 billion, respectively, and the 3-year CAGR was 11%; cast spindles were 21/26/3.3 billion, respectively, and the 3-year CAGR was 26%. The spindle industry shows a pattern of duopoly competition, and the competitive advantage of leading companies is very obvious.
The basic foundation of the forging business is solid, and the volume of the foundry business is imminent. In terms of forging business, the company is an absolute leader in the wind power spindle industry. It has outstanding product strength, high-quality customer resources, and products can enjoy a certain premium compared to peers. At the same time, the company's own supply of raw materials and the development of hollow forging processes continue to reduce costs and increase efficiency to consolidate its competitive advantage. In addition, by vigorously developing other precision drive shaft businesses, the company can effectively absorb small megawatts of forged spindle production capacity while contributing to incremental revenue, and guarantee the overall profitability of forging products. In terms of casting business, construction of the first phase of Dongying began in 2022 and is expected to be put into operation in the second half of 2023. The company's effective casting production capacity is expected to reach 180,000 tons by 2025.
The technology, technology and customer advantages that the company has accumulated over many years in the field of forging spindles are expected to be transferred to the casting business. The competitiveness is quite outstanding, and the casting business is expected to expand rapidly and become the core driving force for the company's performance growth.
Profit forecast and investment advice: We expect the company's net profit to be 4.9/6.0/890 million in 23-25, respectively, and the corresponding EPS will be 1.51/1.85/2.74 yuan/share, respectively, up 39%/22%/48% year-on-year, respectively, and a 3-year CAGR of 36%. The average PE of comparable companies in 23-25 was 16/11/8X, respectively. Considering that the company is the absolute leader in global wind power spindles, the foundry business is about to expand, and it is expected that it will fully benefit from the boom in the wind power industry at home and abroad. It was given 15 times PE in 2024, corresponding to a target price of 27.71 yuan/share, covered for the first time, and gave a “buy” rating.
Risk warning: customer certification falls short of expectations; wind power installations fall short of expectations; increased industry competition; risk of rising raw material prices, etc.