Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 23.348 billion yuan, a year-on-year increase of 13.10% (compared with the 2022 data before adjustment, same below), and net profit to mother of 423 million yuan, an increase of 15.53% over the previous year; it plans to distribute a cash dividend of 0.16 yuan (tax included) per share to all shareholders of the company. 2023Q4 achieved operating income of 6.439 billion yuan, a year-on-year increase of 6.64%, and realized net profit of 0.18 million yuan, a year-on-year decrease of 69.33% and a year-on-year decrease of 88.56%.
The revenue scale of the company's various businesses increased year-on-year in 2023, and profitability was under pressure. The company is currently the largest wire and cable manufacturer and sales enterprise in Shanghai. Its products mainly include power cables and wires and cables for electrical equipment. In 2023, the company's power cable business achieved revenue of 15.389 billion yuan, a year-on-year increase of 14.51%, and gross margin decreased 2.28 pcts to 4.42% year on year; wire and cable for electrical equipment achieved revenue of 7.386 billion yuan, an increase of 11.58% year on year, and gross margin decreased by 1.24 pcts to 9.09% year on year. As of December 31, 2023, the company has 166 patents and more than 50,000 kinds of products. Among them, high-end specialty products such as low impedance DC high voltage cables for high energy electron accelerators, high flexible robot cables, military sealed cables, and cold-resistant cables have reached the leading level in China.
R&D and innovation advantages help the company produce submarine cables, and we expect the submarine cable business to bring performance growth and improved profitability.
By the end of 2023, the company's production bases were located in Jinshan, Shanghai, Chizhou, Anhui, and Yichang, Hubei. Minhang Nanyang-Fujikura and Fujian Pingtan submarine cable bases were under construction. In terms of research and development, the company has completed the inspection of 220KV, 330KV, and 500KV submarine cable photoelectric composite cables. Among them, 220KV and 330KV submarine optoelectronic composite cables issued product qualification inspection reports in 2023, and 500KV submarine photoelectric composite cables issued product qualification inspection reports in February 2024, and it is fully capable of producing high-voltage submarine cables. The submarine cable projects that the company publicly won the bid in 2023 include the 220kV submarine cable section I of the Huaneng Shandong Peninsula North BW site and the 35kV submarine cable for the Huaneng Daishan No. 1 offshore wind power project. The winning bid amounts were 120 million yuan and 92 million yuan respectively. Among them, the BW site ocean wind project is the first 220kV offshore wind power submarine cable project that the company has publicly bid for. It marks a major breakthrough in the field of offshore wind power for the company's submarine cable products, which not only enriches the company's project experience and performance endorsement, but also further enhances the ability to obtain orders for high-voltage grade submarine cables.
Maintaining a “buy” rating: In 2023, the overall construction progress of China's offshore wind power projects was slow, the company's submarine cable delivery was affected to a certain extent, and the gross margin of the power cable business was under pressure. Based on prudential principles, we lowered our 24-25 profit forecast and introduced a 26-year profit forecast. The company is expected to achieve net profit of 5.80/715/847 million yuan in 24-26 (27% down/26% /increase), corresponding to 24-26 EPS of 1.39/1.71/2.03 yuan, and the current stock price corresponding to 24-26 PE is 13/10/9 times. The company is the largest wire and cable manufacturer and sales enterprise in Shanghai. The submarine cable business can be expected in the future and maintains a “buy” rating.
Risk warning: risk of fluctuations in raw material prices; risk of increased market competition; policy causes offshore wind power investment to slow risk.