Incidents:

Jinbei Electric released its 2023 annual report on March 28: In 2023, the company achieved revenue of 15.293 billion yuan, +15.83%; net profit to mother of 523 million yuan, +41.06% year over year; net profit after deducting non-scale net profit of 489 million yuan, +46.47% year on year; gross profit margin 11.29%, -0.25pct year on year, net profit margin 3.87%, year-on-year +0.70pct.

Among them, 2023Q4 achieved revenue of 4.309 billion yuan, +19.66% year over month, +3.11% month on month; net profit to mother of 164 million yuan, +54.05% year on month, +33.94% month on month; gross profit margin of 11.18%, -1.11 pct year on year, +0.15 pct month on month, net profit margin 4.21%, +0.77 pct year on month, and +0.81 pct month on month.

Investment highlights:

Thanks to strong demand from transformers, new energy vehicles, and overseas, electromagnetic wire sales reached a new high.

In 2023, the company achieved electromagnetic wire revenue of 5,020 billion yuan, +27.20% year on year; net profit reached 223 million yuan, +27.54% year on year; sales volume exceeded 70,000 tons, +23.25% year over year.

During the reporting period, the growth in flat magnet wire performance was mainly driven by strong demand from transformers, new energy vehicles, overseas demand, and tax relief. Looking at the downstream, 1) sales volume of transformer wire increased by about 25% year on year, with UHV transformer wire increasing more than 2 times year over year. The company successfully won the bid for “2 to 4 straight” UHV line projects in China, Chongqing, Longdong, etc., and the first domestic “transit to direct” transmission project - Yangzhen DC project; 2) The annual sales volume of NEV wire increased nearly 64% year on year, and has been supplied to major domestic battery pack companies; 3) The company's direct export of flat electromagnetic wires increased by about 26% year on year. In addition, the company enjoyed an additional 5% VAT deduction from the country's advanced manufacturing industry, increasing net profit by 11.9601 million yuan.

Cable focuses on channel and major customer development. Risk management and control go hand in hand with cost reduction and efficiency, driving high performance growth. In 2023, the company's cable revenue was 10.099 billion yuan, +13.04% year on year; net profit reached 347 million yuan, +41.62% year over year, sales volume 2.79 million kilometers, +12.65% year on year.

The company focuses on channel and major customer development, and its business scale continues to expand, and gross profit growth is basically consistent with the increase in scale; at the same time, it strengthens internal cost reduction, efficiency and risk control, with credit impairment losses of -28%, affecting net profit +6% year-on-year; in addition, it enjoyed the country's advanced manufacturing industry plus 5% VAT tax credit, increasing net profit by 53.1959 million yuan. During the reporting period, the company's new product matrix continued to be enriched, closely following the development of new energy sources, and completed the development and formation of orders for LIYCY, EYU, and RVY series products. Approximately 30 new customers were developed throughout the year, achieving batch supply from Xinhailin, Binjie Electromechanical, and Yinpu Power; medium and high voltage, aluminum alloy wind energy cables have achieved initial performance, laying the foundation for subsequent comprehensive promotion in the wind power industry; low-smoke halogen-free shield machine cables have been sold on a large scale and exported overseas along with customer equipment.

The second clean energy growth curve has achieved remarkable results, and the expansion of production capacity has helped the new momentum to grow.

In 2023, the company's sales revenue in the clean energy sector exceeded 1.3 billion yuan, accounting for 9% of revenue, +46% year-on-year, and achieved remarkable results in cultivating the second growth curve. In addition, the company's production capacity expansion is gradually progressing. Based on the current production capacity of 20,000 tons of flat electromagnetic wires for NEV motors, the third phase of the 30,000 ton capacity expansion project is under construction and is expected to be put into use in 2025. At the same time, the company is expanding an industrial cable project in Hengyang to produce new energy vehicle cables and charging pile cables, robot cables, servo cables, sensor cables, drag chain cables, etc. The project has a planned output value of 1 billion yuan and is expected to be completed and put into operation in 2025. While improving the domestic basic market, the company will accelerate the implementation of overseas production capacity layout based on existing export business.

Profit forecast and investment rating: The company is a global leader in flat electromagnetic wire and an advantageous enterprise in the cable industry. It has achieved remarkable results in establishing mature product barriers and laying out the second growth curve in the clean energy sector. We expect the company to achieve revenue of 177.88/205.49/ 24.279 billion yuan in 2024-2026, net profit to mother of 6.01/7.20/872 billion yuan. The PE corresponding to the current stock price is 13X, 11X, and 9X, respectively. Covered for the first time, it was given a “buy” rating.

Risk warning: macro-environmental risk, raw material price fluctuation risk, increased risk of market competition, risk of accounts receivable repayment, risk of overseas expansion falling short of expectations.