Key points of investment
An advantageous enterprise in the cable industry, the world's leading company for high-dividend flat electromagnetic wire is a global leader in the flat electromagnetic wire industry and a leading enterprise in the central and western regions of the country in the cable industry. In 2022, the company achieved operating income of 13.203 billion yuan, an increase of 2.89% over the previous year, and achieved net profit of 371 million yuan to mother, an increase of 11.85% over the previous year. Benefiting from the acceleration of domestic UHV construction and strong demand in the foreign electricity market, the first three quarters of 2023 achieved operating income of 10.984 billion yuan, an increase of 14.40% over the previous year, and realized net profit of 359 million yuan, an increase of 35.83% over the previous year. Structurally, the company's wire and cable and flat magnet wire accounted for 66.22% and 32.59% of revenue, respectively, in the first half of 2023. Furthermore, since its listing, the company has accumulated dividends of 1,311 billion yuan, accounting for 56.75% of the total net profit of the period; in 2022, it paid a cash dividend of 257 million yuan, with a dividend rate of 69.27%.
The concentration of the cable industry is expected to increase. Demand for flat electromagnetic wires has blossomed more and more. Driven by downstream demand for electricity, automobiles, etc., China has developed into the world's largest cable manufacturer. The domestic cable market is expected to reach 1.2 trillion yuan in 2023. The cable industry in developed countries such as Europe and America has developed over a long period of time. CR10 is 70% or more. The market share of China's wire and cable industry is scattered, but it is expected that in the future, as industry mergers, acquisitions and restructuring will accelerate, it will continue to concentrate on leading companies. Magnetic wire is an important branch of wire and cable, accounting for about 13% of the market. Benefiting from the increase in demand for high-voltage grade transformers at home and abroad, and the increase in the penetration rate of flat wire motors for new energy vehicles, the demand for the flat electromagnetic wire market is expected to continue to increase.
Deeply cultivating domestic channels, developing overseas markets, and ensuring growth at home, the company's direct sales products such as electromagnetic wire and cable have long supported leading companies such as ABB, Siemens, TBEA, China Grid, Huichuan Technology, and Shanghai Liandian, with deep cooperative relationships; there are more than 10,000 physical sales stores for wire and other product dealers, building a mature and strong customer base. On the overseas side, the company integrated high-quality overseas customers of Tongli Electric to accelerate overseas market development, become one of the largest domestic export suppliers of flat electromagnetic wires for transformers, and actively demonstrate the viability of overseas business expansion and overseas layout. In terms of production capacity, the company's flat magnet wire production capacity will exceed 100,000 tons in 2024, and the gradual and orderly release of production capacity will strongly guarantee performance growth.
Profit forecasting and valuation
First coverage, giving a “buy” rating. The company is a global leader in flat magnet wire and an advantageous enterprise in the cable industry. It has benefited from high prosperity in many downstream fields, and the release of production capacity guarantees steady growth in performance. We expect the company's net profit to be 4.93, 6.01, and 741 million in 2023-2025, corresponding EPS of 0.67, 0.82, and 1.01 yuan/share, respectively. The PE corresponding to the current stock price is 14, 12, and 9 times, respectively. We selected Siyuan Electric, which is mainly engaged in transformers, Wanma Co., Ltd., which is engaged in the wire and cable business, Jingda Co., Ltd. in the electromagnetic wire business, and Qifan Cable as comparable companies. The average PE in the same industry in 2024 was 15 times higher. Considering the company's steady operation and high dividends, it is expected to enjoy industry dividends such as UHV and increased demand for overseas transformers in the future. We gave the company a 2024 PE valuation 15 times, corresponding to a market value of 8.9 billion yuan and a target price of 12.11 yuan. Corresponding to the current market value, there is room for an increase of 28.47%. For the first time, we covered it for the first time, and gave it a “buy” rating.
Risk warning
The risk of continuing macroeconomic pressure; the risk of fluctuations in raw material prices; the risk of increased market competition.