Key points of investment:
Incident: The company released its annual report. In 2023, the company's revenue was 1,029 million yuan, yoy +35%, net profit to mother was 87 million yuan, yoy +48%, net profit after deducting non-return to mother of 81 million yuan, yoy +54%. The performance was in line with expectations.
Thermal power infrastructure accelerates and stock replacement resonates, traditional main industry slag equipment is developing steadily, and the province is growing rapidly. Benefiting from a series of favorable policies such as the country's accelerated investment in new thermal power generation and upgrading, the market demand for the company's traditional main products continued to rise. Among them, slag equipment's revenue in 2023 was 484 million yuan, yoy +19%, and low provincial revenue was 245 million, yoy +100%.
We expect the company's slag equipment will continue to grow steadily along with the acceleration of thermal power infrastructure and the replacement of the low saving life span of the first installation since 2014, and the low province will continue to grow rapidly. In terms of gross margin, slag equipment remained stable at about 36%, and the overall increase in low-saving equipment was steady at about 29%.
The progress of flexibility transformation is slightly lower than expected, compounded by order rhythm issues. The company's full-load denitrification business declined slightly, and is expected to accelerate again in 2024. In 2023, the company's full-load denitrification system generated revenue of 128 million, yoy -25%. We believe this aspect is related to the degree of fire improvement. At the same time, some new orders in 2023 were tendered late, and some orders were not completed that year. On February 27 of this year, the National Development and Reform Commission and the Energy Administration issued the “Guiding Opinions on Strengthening Power Grid Peak Shifting Energy Storage and Capacity Building for Intelligent Scheduling”, which proposes to carry out in-depth flexible transformation of coal-fired power units and achieve “thorough reform” of existing coal power units by 2027. In regions with a high share of new energy and insufficient peak shifting capacity, explore deep peak shifting of coal power units on the premise of ensuring safety, and the minimum power generation output reaches 30% below the rated load. We believe that fire reform is expected to accelerate definitively in 2024. In terms of gross margin, the full-load denitrification business declined slightly to 33%.
Emerging businesses such as steel slag and desulfurization wastewater are being released rapidly, and the company will continue to grow strongly in the future. In 2023, the company landed its first order in the steel slag business, with a contract amount of 104 million yuan and confirmed revenue of 92 million yuan, indicating that the company has successfully opened up the steel slag treatment market and there is plenty of room for future growth. Furthermore, in 2023, the company's zero discharge system for desulfurization wastewater achieved revenue of 19 million yuan, yoy +36%, and is expected to continue to be released in the future.
Investment analysis opinion: We continue to be optimistic about the main logic of acceleration of thermal power investment and gradual expansion of flexibility transformation. At the same time, the company's second curve is gradually realized. We raised the company's net profit to the mother for 2024-25 to 1.52 billion yuan (140/174 million yuan before the increase), and added the 2026 net profit forecast to 245 million yuan, corresponding to PE of 13/10/8 times, respectively, maintaining the “buy” rating.
Risk warning: The scale of new thermal power installations falls short of expectations, and the flexible transformation schedule falls short of the expected risk.