The performance growth trend is good, benefiting from the broad prospects of the amorphous business
The performance growth trend is good, and revenue and profit have maintained rapid growth over the years. According to the 2023 Annual Results Report, in 2023, the company achieved operating income of 1,772 billion yuan, an increase of 22.43% over the same period of the previous year; realized net profit of 332 million yuan, an increase of 46.62% over the same period of the previous year; realized net profit after deducting non-recurring profit and loss of 305 million yuan, an increase of 53.63% over the same period of the previous year. The increase in performance was mainly due to the increase in production and sales volume and gross margin of the company's amorphous series products last year, as well as the positive effects of exchange rate fluctuations.
The largest domestic supplier of amorphous alloy thin strips, accelerating the expansion of overseas markets. Currently, the company has become the largest supplier of amorphous alloy thin strips in the industry, with an annual design capacity of 90,000 tons. At the same time, the company continues to explore the international market, and the overseas sales volume and scale of amorphous alloy products are growing rapidly. The main customers are distributed in India, South Korea, Vietnam and other countries; amorphous was first promoted to some South American markets in 2022.
Continuously increasing investment in R&D and transforming into a comprehensive solution provider for the entire industry chain to promote wider and higher quality downstream applications of amorphous alloy thin strips, the company gradually expanded from a material manufacturer supplier for amorphous alloy thin strips to downstream products and comprehensive solution providers for the entire industry chain. Specifically, amorphous box-type transformers have been connected to the photovoltaic field for the first time in recent years; amorphous solutions have been successfully promoted in subway projects, data center projects, and charging station projects in many parts of the country.
With the help of policies, demand for amorphous strips continues to rise
Amorphous strips are mainly used in electricity distribution, photovoltaics, rail transit, data centers, home appliances, new energy vehicles, etc. Strong national policy support and emerging industries have ushered in historic development opportunities, driving demand for amorphous strips to continue to rise. (1) Power distribution sector: By 2025, the share of high-efficiency and energy-saving power transformers will increase by more than 10 percentage points compared to 2021, and the proportion of new high-efficiency and energy-saving power transformers will reach more than 80% in that year. (2) Photovoltaic sector: According to WoodMackenzie's latest research report, by 2024, 176 GW photovoltaic inverters will have a service life of more than ten years, and the total inverter replacement cost is estimated to be close to 1.2 billion US dollars. (3) Data center sector: The “White Paper on the Development of China's Data Center Industry (2023)” mentions that domestic data center racks are expected to be close to 14 million by the end of the “14th Five-Year Plan” period, with a total incremental investment of about 700 billion yuan.
Investment advice
We expect the company to achieve operating income of 17.72/19.99/2,274 billion yuan in 2023/2024/2025, up 22.43%/12.83%/13.73% year-on-year respectively; net profit to mother will be 3.32/3.90/ 440 billion yuan, respectively, up 46.62%/17.43%/12.76% year-on-year, and corresponding EPS of 2.77/3.25/3.67 yuan respectively. Based on the closing price of 77.91 yuan on March 28, 2024, the corresponding PE corresponding to 2023-2025E was 28.13/23.95/21.24 times, respectively. First coverage, giving a “buy” rating.
Risk warning:
Risk of demand falling short of expectations, risk of international trade, risk of exchange rate changes, etc.