FY2023 and 1Q24 results fall short of market expectations
The company announced its 2023 and 1Q24 results: the company's revenue in 2023 was 1,946 billion yuan, up 7.4% year on year, and net profit to mother was 412 million yuan, up 16.8% year on year. 1Q24 achieved revenue of 255 million yuan, a year-on-year decrease of 41.6%, and net profit to mother of 0.29 million yuan, a year-on-year decrease of 70.8%. The company's performance in 2023 and 1Q24 fell short of market expectations. Among them, 4Q23 was mainly due to changes in product structure and slight price cuts for some products, and 1Q24's revenue and profit performance was clearly weak, mainly due to 1) the same period in 2023 had a high shipping base after the impact of the epidemic ended, and the industry returned to a normal quarterly shipping rhythm this year, resulting in fewer products confirming revenue; 2) At the end of 2023, most of the company's new production capacity in Dongying castings was consolidated, along with an increase in unit depreciation, which greatly reduced 1Q24 overall The gross margin reached 23.9%.
Development trends
The industry's demand for installed equipment continues to grow throughout the year, and the company is expected to accelerate shipments starting 2Q24. Under the high base of 79.4 GW of new domestic hoisting in 2023, we expect to achieve 80-90GW of new hoisting domestically in 2024, and it is likely that it will continue to grow. According to GWEC forecasts, demand for wind power in overseas markets is also expected to grow from 41.0 GW in 2023 to more than 50 GW. Supported by growing domestic and overseas demand, the company is expected to maintain a high increase in product shipments, especially new casting products. In terms of pace, since the domestic market, which accounts for a relatively high proportion, mainly focuses on assembly and subsequent hoisting of the whole machine starting 2Q24, we expect the company to accelerate shipments starting 2Q24.
The casting business has driven performance growth over a long period of time, and the forging business is actively developing new customers. We believe that with the gradual launch of domestic offshore wind power and the increase in overseas market demand in the next few years, the company's casting capacity is expected to gradually increase capacity utilization. In addition, the company's development in the free forging business in recent years has also made up for the vacant production capacity of forgings, and the company also announced plans to continue to expand forging production capacity to meet the needs of different industries. We expect these two businesses to be the company's long-term growth direction.
Profit forecasting and valuation
Considering that production capacity and order release pace at the company's Dongying base was slightly slower than expected, and the slight price reduction of the company's products, we lowered our net profit forecast for 2024/2025 by 30.8%/16.4% to 486 million yuan/631 million yuan, respectively. The company's current stock price corresponds to the 2024/2025 11.9/9.2 price-earnings ratio. As industry demand gradually enters an upward cycle, we continue to be optimistic about the incremental profit elasticity brought about by the release of the company's large megawatt casting and free forging production capacity, and maintaining the company's outperforming industry rating. Due to the reduction in profit forecasts, the company's target price was lowered by 34.4% to 23.88 yuan, corresponding to the 16.0 time/12.4 times price-earnings ratio in 2024/2025, and there is 34.5% upside compared to the current stock price.
risks
Raw material prices have risen; the industry's installed demand has fallen short of expectations; the company's new production capacity construction progress and customer development progress have fallen short of expectations.