Introduction to this report:
The company has been deeply involved in the valve industry for 20 years. It has a wide business layout, downstream dispersion, and strong cyclical resistance. In the context of domestic substitution, the traditional downstream boom is improving, and new businesses such as superposition of new energy and nuclear power are expanding rapidly, and the company's performance is expected to grow rapidly.
Key points of investment:
Investment advice: The company's performance exceeded expectations. Considering the continued advancement of domestic substitution in the industry, the recovery in traditional downstream prosperity and the smooth expansion of new business, the company's performance is expected to grow rapidly, maintain EPS of 1.14/1.35/1.60 yuan in 2024-2026, maintain a target price of 21.66 yuan, and increase its holdings.
The results exceeded expectations. The company announced that in the first quarter of 2024, it achieved revenue of 1,360 million yuan/ +24.54%, net profit attributable to mother of 197 million yuan/ +100.45%; net profit withheld from non-mother of 194 million yuan/ +91.56%. The main reasons for the high increase in net profit to the mother were: 1) the high volume of shipments in the first quarter, leading to a year-on-year increase in revenue; 2) the RMB exchange rate remained high, which benefited the company's export business; 3) the cost ratio was 15.47% during the 2024Q1 implementation period, -1.77pct/month-on-month -5.45pct; 4) the improvement in product structure led to an increase in gross margin, and 2024Q1 achieved gross margin of 33.30% /year over year +4.66 pct month-on-month.
The traditional downstream boom is maintained, and new businesses are growing rapidly. 1) Traditional downstream helps the valve manufacturing industry grow, global power generation is rising steadily, and global energy demand is bringing high demand to the industrial valve industry; 2) LNG and hydrogen energy: the Russian-Ukrainian conflict has led to an increase in demand for energy such as LNG in Europe; the Middle East energy transition accelerates hydrogen energy construction to release more valve demand; 3) Offshore engineering: domestic orders for LNG ships and FPSO ships have increased dramatically, and the industry's localization substitution is expected to accelerate, and orders will gradually be released; 4) Nuclear power: Nuclear power units are expected to reach 6-8 units every year in the future, and the value of valves required for stand-alone units is about 500 million; Ethylene: Domestic ethylene project construction is gradually being carried out, and orders are expected to be released.
The product structure has been improved, and there are plenty of orders in hand. In recent years, the company has continued to expand LNG, offshore, nuclear power and other fields, increasing the share of high quality orders and improving the company's profit margin. 2024Q1's net profit margin reached 14.47% /YoY +5.48pct/month-on-month +4.25pct. As the product structure continues to improve, I am optimistic about the room for improving the company's profit margin. The company's contract debt for 2024Q1 reached 210 million yuan/+15.05% month-on-month, revealing that the company is full of on-hand orders and supports future performance.
Risk warning: Reduced downstream capital expenditure due to falling oil prices, ethylene project construction falls short of expectations, etc.