2023 results are in line with market expectations
The company announced its 2023 results: revenue of RMB 50.46 billion, up 8.7% year on year; net profit to mother was RMB 1.33 billion, down 44.2% year on year. Among them, 4Q23's revenue was 21.14 billion yuan, up 4.3% year on year, and net profit to mother was 70.2 million yuan, which is basically in line with the slight profit status of 3Q23. The company's 2023 performance was in line with market expectations. The annual results showed a sharp year-on-year decline, mainly due to the company's fan business profits still under pressure, but the business's losses have shrunk slightly compared to 2022. In addition, poor performance in the wind power service business, increased impairment, and increased income tax have led to a decline in profits.
The gross margin of 2H23 fans has rebounded. The company achieved 13.77 GW of external sales of fans in 2023, a slight decrease of 0.7% over the previous year. The gross margin of the company's fan and parts business for the full year of 2023 was 6.41%, and 1H23 was 3.64%. It is estimated that 2H23 has reached 8.16%. The gross margin of the company's fan and parts business has shown an upward trend, mainly due to 1) the fan business has basically completely switched to a low-cost medium speed permanent magnet route, and the profit margin increased after product release; 2) In the parts business, the company increased revenue from concrete towers and energy storage products. This portion of the profitability is higher than that of fans.
The power plant business continued to perform strongly, and the wind power service business 2H23 profits have recovered. The company added 1.73 GW of equity grid-connected capacity in 2023, and sold 1.57 GW of wind farms abroad throughout the year, of which 0.74 GW was sold in the form of power plant product sales. As of the end of 2023, the company was operating 7.29 GW of grid-connected power plants and under construction of 2.35 GW. Affected by the depreciation of 1H23's overseas EPC business, the company's wind power service business profit declined year-on-year. However, 2H23's profit returned to a normal level. The company's wind power service revenue for the whole year was 5.24 billion yuan, of which post-service revenue was 3.03 billion yuan, an increase of 22.9% over the previous year, and continued to grow strongly.
Development trends
The gross margin of fans is expected to improve further in 2024, and the power plant and service business will continue to contribute strongly to growth.
In 2024, we expect there is room for further improvement in the company's fan gross margin as the company's shipping structure improves (high-profit ocean breezes and the share of overseas shipments) and the reduction in parts procurement costs.
Furthermore, we expect the installed capacity of the company's new power plants to reach a new high in 2024, while further promoting continued growth in sales of power plant products. In the wind power service business, the company has actively transformed to backward service, and we believe this business is expected to continue to bring rapid growth.
Profit forecasting and valuation
Although the company's fan profit has recovered somewhat, it is still in a state of loss. We lowered the company's profit forecast for 2024 by 22% to 2.43 billion yuan, keeping the profit forecast for 2025 unchanged. The company's current A shares correspond to the price-earnings ratio of 13.1/8.3 times in 2024/2025, and H shares correspond to 4.5/2.7 times the price-earnings ratio in 2024/2025. We are optimistic about the loss reduction trend in the company's fan business and the strong growth of the power plant and service business, maintaining the company's A share and H share outperforming industry ratings. Due to the downgrade of profit forecasts, the target price for A shares was lowered by 21.7% to 9.18 yuan, corresponding to the 2024/2025 price-earnings ratio of 16.0/10.1 times. There is 21.9% upside compared to the current stock price, and the target price for H shares was lowered by 26.6% to HK$4.05, corresponding to the 6.3/3.8 times price-earnings ratio in 2024/2025, with 39.7% upside compared to the current stock price.
risks
The wind power industry's installed demand fell short of expectations; increased competition in the industry dragged down the gross profit margin of fan manufacturing.