Incidents:
The company released the “2023 Annual Report”. In 2023, the company achieved operating income of 2,133 billion yuan, +9.10% year on year, realized net profit of 269 million yuan, +18.16% year over year, and realized net profit of 244 million yuan without return to mother, +23.17% year on year.
Q4 After deducting non-profit, there was a high increase in gross margin
The company achieved operating income of 590 million yuan in 2023Q4, +16.18% year over year, realized net profit of 67 million yuan, +38.71% year over year, and realized net profit of 66 million yuan without deduction of net profit to mother, +83.65% year on year.
The company achieved a gross profit margin of 31.69% in 2023, +1.84pct year on year, and achieved a net profit margin of 12.6%, +0.96pct year on year, mainly due to the year-on-year increase in high-margin nuclear power and energy saving service products.
Benefiting from the development of nuclear power, the growth of ball valves, butterfly valves, and flanges, companies with high growth in energy saving service products are the main suppliers of nuclear power valves. Since 2008, the company has obtained more than 90% of orders for nuclear grade butterfly valves and nuclear grade ball valves, benefiting from nuclear power approval to accelerate construction. In 2023, the company's revenue for butterfly valves/ball valves/flanges and forges/underground pit filters was 5.2 billion 1.70/701/0.4 billion yuan respectively, with year-on-year increases of 16.83%/16.79%/16.29%/37.4%, respectively. Benefiting from the steel industry's energy saving and carbon reduction needs, the company's energy saving business developed rapidly and achieved revenue of 261 million yuan in 2023, +64.01% over the same period last year.
Orders increased year over year, and high R&D drives companies to enter multiple industries
In 2023, the company added 2,916 billion yuan of orders, +20.8% year-on-year, of which nuclear power/metallurgy/energy equipment/ Wuxi Flang/ Ruifan energy saving orders were +16.89%/-6.82%/+15.93%/-8.68%/+158.13%, respectively. The company spent 95 million yuan on R&D in 2023, +26.52% over the same period last year. High R&D drives the company to improve products in the nuclear power field and expand the hydrogen energy business. In 2024, the company plans to target increases for specific targets. Among them, the target products for capital raising are high-end special valves in the field of nuclear energy equipment. In terms of hydrogen energy, Shentong New Energy is mainly aimed at the research and development of 35-105 MPa high-pressure hydrogen valves, and currently has the capacity to supply them in batches.
Profit Forecasts, Valuations, and Ratings
Demand for valves in the steel and metallurgy industry declined in 2023, and performance was under pressure. We expect the company's revenue for 2024-2026 to be 26.59/30.98/3.380 billion yuan, respectively, with year-on-year growth rates of 24.67%/16.48%/9.13%, and net profit to mother of 3.30/4.09/476 million yuan, respectively, with year-on-year growth rates of 22.58%/24.2%/16.32%, EPS 0.65/0.81/0.94 yuan/share, and 3-year CAGR 20.95% Given that the company is a leader in the valve field and benefits from the development of the nuclear power industry, based on comparable company valuations, we gave the company 23 times PE in 2024, with a target price of 15 yuan, maintaining a “buy” rating.
Risk warning: Nuclear power construction falls short of expectations, raw material prices rise, and expansion in new fields falls short of expectations