Incident Overview

Neway Co., Ltd. published its 2023 Annual Report and 2024 Quarterly Report on April 12 and 25, 2024 respectively. The company achieved net profit of 722 million yuan in 2023, +54.85% year-on-year; in the first quarter of '24, net profit of 197 million yuan, +100.45% year-on-year.

24Q1 net profit +100% YoY, increased profitability

The company achieved revenue of 5.544 billion yuan in 2023, +36.59% year-on-year, and achieved revenue of 1.36 billion yuan in Q1 2024, +24.54% year-on-year. In terms of regions, the company's domestic and foreign sales revenue continued to grow in 23 years. The company's domestic sales revenue reached 2.45 billion yuan +48.3% year over year, export revenue reached 3.03 billion yuan +27.4% year on year, and domestic sales revenue accounted for 44.1%, an increase of 3.5 pcts over the previous year.

On the profit side, the company's net profit to mother reached 722 million yuan in '23, +54.85% year on year, and net profit to mother reached 197 million yuan in 24Q1, +100.45% year on year. In terms of profit margin, the company's gross margin reached 31.4% for the full year of '23, up 0.9 pct from '22, and the gross margin of the 24Q1 company increased by 33.3%, up 4.66 pct from 23Q1; the company's net profit margin reached 13.24%, up 1.56 pct from year '22, and the net profit margin of the 24Q1 company reached 14.67%, up 5.65 pct from Q1 in '23, reflecting the company's enhanced cost control capabilities and a further increase in profit level.

The 24Q1 R&D cost rate was +40.9% year-on-year. High-end products continued to break through, and the company's R&D expenses in 2023 reached 186 million yuan, +5.32% year-on-year. 24Q1's R&D investment continued to increase to 50 million yuan, +40.9% year-on-year. The company continues to promote process technology improvement and optimization, and continues to achieve high-end product breakthroughs, such as: 1) successfully breaking through the 24-inch 2,500LB emergency shut-off valve in 2023. The successful delivery of this valve means that the company has the ability to provide a full range of valve solutions for FPSO marine high-end emergency shut-off systems; 2) continuous breakthroughs in eccentric hemispherical valves; 3) Breakthrough in ultra-high pressure stop valve technology for BDO (butylene glycol) devices; 4) successfully developed a nuclear grade miniaturized stop valve prototype and successfully passed a full set of certification tests.

Further enhance upstream production and supply capacity, customer coverage and cooperation continue to expand the upstream casting and forging supply level. The company's casting and forging subsidiaries continue to carry out process research and innovation, upgrade product design processes, broaden downstream application areas to cover oil and gas equipment, wind power energy equipment, petrochemical-pressure vessel equipment, construction machinery and valve industries, and the competitiveness of the upstream raw materials industry chain continues to improve.

At the customer level, the company continues to develop deep strategic cooperation with global energy industry giants such as Shell, Total, CNPC, and Sinopec. The company expands the market in the fields of LNG, fine chemicals, nuclear power, etc., and continues to contribute to carbon neutrality in the development of clean energy such as marine wind power, hydrogen energy, geothermal energy, bioenergy, solar energy and carbon capture. At the same time, the company achieved breakthroughs in high-end stop valves and check valves for nuclear islands. In 2023, it was fully recognized by customers, and a complete package order was accepted for the first time. The company's customer and downstream coverage continues to expand.

Profit_ULIM forecasting, valuation and investment ratings

According to the company's annual report for the year 23 and the quarterly report for the year 24, combined with judging the company's market share and production capacity release progress, we revised the profit forecast to 2024-2026 as operating income of 64.23/74.36/8.606 billion yuan (value before 2024/2025), respectively, and net profit attributable to mother was 8.56/996/1,162 million yuan (value before 2024/2025). The diluted EPS calculated based on the current total share capital is 1.13/ 1.31/1.53 yuan (value 1.03/1.23 before 2024/2025). The company's current stock price is 17/14/12 times the PE multiples of the predicted EPS for 2024-2026, respectively. As a leading domestic industrial valve enterprise, the company's high-end market and products have broken through and continued exports. As many downstream demands continue, the company is expected to continue to gain competitive advantage through the upstream industry chain and product channel layout, and maintain a “buy” rating.