Core views:
An established first-line cable supplier, increased submarine cables to open up room for growth. Established in 1994, the company is the largest power cable supplier in Shanghai, specializing in various types of power cables and their supporting equipment. In 2020, the company established a subsidiary of Yichang Holdings and officially entered the submarine cable field. The Cangnan No. 2 35KV array cable sea breeze project was bid in '22. In '23, it achieved a breakthrough in orders for 220KV large-length transmission cables, broke through technical barriers in the same year, and became one of the few domestic manufacturers with the capacity to produce 500KV ultra-high voltage submarine cables. In 2023, the company's revenue was 23.348 billion yuan, +13.10% year on year, net profit to mother of 423 million yuan, +15.42% year on year, net profit margin 1.82%, +0.03pct year on year. Performance improved steadily and profitability recovered.
The submarine cable market space is broad, and the competitive pattern is stable with high technical barriers. In 2023, China added 75.9 GW of installed wind power, a year-on-year increase of 105.4%, setting a record high. Among them, the installed capacity of offshore wind power was 6.04 GW, with a growth rate of 20.8%. “Offshore Wind Power +” accelerates industrial integration, enhances profitability and opens up room for growth; there is huge room for wind farm renovation and replacement, and favorable policies activate the stock market. The deep-sea trend is driving high-voltage submarine cables. Technical barriers are high, the competitive pattern is relatively stable, and the high value of submarine cables is expected to be maintained.
High quality card market layout, submarine cable production capacity, location advantages protect order acquisition. In 23, the company successively laid out submarine cable production bases in Pingtan and Fangchenggang, fully benefiting from the construction of offshore wind power bases in southern Fujian and Beibu Gulf. Demand for submarine cables is strong; in addition, there are few local submarine cable manufacturers in the two places, and the competitive environment is good. As the two places are completed and put into operation, it is expected that performance will increase.
Profit forecasting and investment advice. The company's 24-26 EPS is expected to be 1.23/1.58/1.68 yuan/share, respectively. Taking into account factors such as the company's industry space, business model, competitive barriers, and performance growth, and referring to comparable company valuations, we think it is appropriate to give the company a 24-year 15 PE valuation, corresponding to a reasonable value of 18.39 yuan/share, and give a “buy” rating.
Risk warning. The risk of fluctuations in raw material prices, the pace of construction and commissioning of new bases falling short of expectations, and the fact that Haifeng installed capacity falls short of expectations, etc.