Incidents:
Recently, Jinlei Co., Ltd. released its 2023 annual report. In 2023, the company achieved operating income of 1,946 billion yuan, an increase of 7.41% over the previous year, achieved net profit of 412 million yuan, an increase of 16.85% over the previous year, and realized net profit of 393 million yuan without return to mother, an increase of 9.19% over the previous year. In Q4 2023, the company achieved operating income of 610 million yuan, a year-on-year increase of 1.65%, achieved net profit of 85 million yuan, a year-on-year decrease of 27.59%, and realized net profit without deduction of 81 million yuan, a year-on-year decrease of 39.28%.
Profitability year-over-year recovery in 2023
Benefiting from lower raw material prices and the company's strong cost control capabilities, the company's profitability picked up in 2023. In 2023, the company's gross margin reached 33.04%, +3.06 pct year on year, net profit margin 21.16%, and +1.71 pct year on year. By product, the company's wind power spindle products achieved a gross profit margin of 33.69% in '23, +3.17pct year on year, and other precision shaft products achieved a gross profit margin of 35.68%, +4.99pct year on year.
Other casting and forging businesses have achieved high growth, adding forging production capacity to enhance competitiveness. In 23 years, the company's other casting and forging business achieved high growth, developing more than 40 new customers, achieving revenue of 276 million yuan, +72% year-on-year, and gross margin of 36.8%, +4.2pct. Looking forward to the future, the company plans to build a full-process production capacity of 280,000 tons of large-scale high-end forgings, with a total investment of 2.65 billion yuan. The company's production capacity and product structure in the forging field are expected to be optimized to further enhance the company's profitability and competitiveness.
Results for the first quarter of 2024 are under pressure, and Q2 is expected to pick up month-on-month
In the first quarter of 2024, the company achieved operating income of 255 million yuan, a year-on-year decrease of 41.56%, and realized net profit to mother of 0.29 million yuan, a year-on-year decrease of 70.80%. 2024Q1 is putting pressure on the company's revenue and profitability. We believe it is mainly due to the year-on-year slowdown in the industry's delivery pace and the low capacity utilization rate of the company's Dongying plant. We expect that as industry demand increases, the company's capacity utilization rate is expected to increase, and the company's performance is expected to pick up in 24Q2.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-26 to be 26.94/32.05/38.33 billion yuan, respectively, with growth rates of 38.45%/18.97%/19.59%, respectively, net profit to mother of 5.1/6.6/80 billion yuan, respectively, with growth rates of 23.76%/28.79%/21.24%, EPS 1.6/2.0/2.4 yuan/share, respectively, corresponding PE of 11/9/7 times. Considering the company's leading wind power spindle, the large megawatt production capacity was successfully expanded. We gave the company 18 times PE in 24 years, corresponding to a target price of 28.19 yuan. Maintain a “buy” rating.
Risk warning: Wind power installations fall short of expectations, capacity expansion falls short of expectations, raw material prices fluctuate.