Description of the event
The company disclosed the “Notice Concerning the Continued Introduction of Strategic Investors by the Subsidiary Jiangsu Hengtong High Voltage Cable Co., Ltd.” The subsidiary Hengtong High Voltage plans to continue to introduce strategic investors and specify the financing targets and shareholding ratio.
Incident comments
The subsidiary Hengtong High Pressure continues to introduce four strategic investors: Jianxin Investment, Bank of China Assets, Hainan Zhongying, and Changshu Economic Development Fund. They each plan to invest RMB 450 million, 400 million yuan, 100 million yuan, and 80 billion yuan in Hengtong High Pressure using a pre-investment valuation of RMB 17.5 billion (pre-investment valuation of RMB 18.5 billion after the CDF manufacturing fund investment), respectively, for a total of RMB 1.03 billion. This capital increase is the same round of capital increase as the 1 billion yuan capital increase carried out by the China Development Manufacturing Fund in December 2023. After the capital increase was completed, the shareholding ratios of CDK Manufacturing Fund, Jianxin Investment, Bank of China Assets, Hainan Zhongying, and Changshu Economic Development Fund were 5.12%, 2.30%, 2.05%, 0.51%, and 0.41%, respectively. The capital increase does not affect Hengtong Optoelectronics's actual control over Hengtong High Voltage. The capital increase funds will mainly be used for Hengtong High Voltage's daily operations and bank loan repayment. After this capital increase, there may be strategic investors such as other industrial capital and professional investment institutions that intend to continue to participate in the current round of Hengtong High Pressure's follow-up financing with a post-investment valuation not lower than this investment. The total amount of financing for the company's marine energy sector is not to exceed RMB 3 billion.
It is worth noting that investors in this round can choose to withdraw from Hengtong's high-pressure level by upvoting shares (that is, buying company shares held by current investors in the current round) to achieve the current round of investors' holdings at the Hengtong Optoelectronics level.
At the management level, the company's performance grew rapidly in 2023, and the scale of winning bids for submarine cables has continued to increase since 2024. The company previously released a performance forecast. In 2023, the company achieved net profit of about 2.06-2.38 billion yuan, an increase of 30-50% over the previous year. The company mainly benefits from UHV, intelligent power grid energy, and demand volume for new energy infrastructure. Businesses related to UHV and intelligent power grids maintained relatively rapid growth, which in turn led to a year-on-year increase in performance. At the same time, the company is actively developing seabreeze and submarine cable market orders. Since 2024, it has won bids for the 66kV submarine cable and installation project (176 million yuan) for the EPC general contract project for Shandong Energy's Bozhong Sea Wind G site (Southern District), 35 kV submarine cable, 220 kV submarine cable and land cable procurement and installation construction (section I; 976 million yuan) for the total amount of 1,152 million yuan. We believe that as subsequent Sea Breeze projects are launched one after another, the company is expected to continue to obtain breakthroughs in submarine cable orders, thus laying the foundation for high performance throughout the year.
At the industry level, domestic seabreeze installations are expected to increase rapidly in 2024, and tenders for potential seabreeze projects are expected to expand. Looking at the construction stage of the project, it is estimated that about 11-12 GW of the 2024 grid-connected ocean wind project has been started/tendered, and the approved/contested project is about 3-4 GW, which is expected to support 10 GW of Haifeng installed capacity in 2024. At the same time, a total of about 18.4 GW (incomplete statistics) of the Seabreeze projects that have been approved for tender is expected to lay the foundation for the future bidding boom.
Looking ahead, we believe that the company is expected to fully benefit from the continued increase in downstream demand such as UHV and intelligent power grid energy, and at the same time actively promote the development of the seabreeze submarine cable market, which is expected to achieve growth in performance. Net profit due to mother in 2024 and 2025 is estimated to be 2.68 billion yuan and 3.18 billion yuan respectively, corresponding to PE 11 and 10 times, respectively. Maintain a “buy” rating.
Risk warning
1. The installed capacity of offshore wind power is lower than expected;
2. Increased competition has led to profitability falling short of expectations.