The company's 2023 and 1Q24 results are in line with our expectations
The company announced its 2023 and 1Q24 results: revenue of $2,133 million, up 9.1% year on year; net profit to mother of 269 million yuan, up 18.2% year on year; net profit after deducting non-return to mother of 244 million yuan, up 23.2% year on year. 1Q24 revenue was 571 million yuan, up 14.8% year on year; net profit to mother was 84 million yuan, up 10.2% year on year. The results were in line with our expectations.
Development trends
Nuclear power approval has been accelerated, and the company has fixed increases to enhance product competitiveness. According to “China's Nuclear Energy Development and Prospects (2023)” 1, it is estimated that by 2035, the share of China's nuclear power generation will reach 10%. We expect to maintain the 10-unit approval rate in 2024. The company plans to increase 300 million yuan for high-end valve intelligent manufacturing projects. The target products are mainly high-end special valves in the field of nuclear energy equipment. The wholly-owned subsidiary, Wuxi Flange, has obtained a license to design and manufacture nuclear safety equipment. We believe that this increase is expected to improve product competitiveness and maintain the company's leading position in high-end valve manufacturing for nuclear energy.
The four major businesses grew collaboratively, and new orders increased steadily. In 2023, the metallurgy/nuclear power/energy/energy saving service business achieved revenue of 3.64/6.94/6.52/ 261 million yuan, an increase of 17.1%/32.6%/30.6%/12.2% year-on-year, and gross margins of +1.7/-1.1/+2.1/-3.6ppt, respectively. In 2023, the company obtained new orders of 2,916 billion yuan, an increase of 20.8% over the previous year, of which Shentong Nuclear Energy/Metallurgy/Energy Equipment/Wuxi France/Ruifan Energy Saving was 8.03/4.51/2.11/7.05/746 billion yuan respectively, +16.9%/-6.8%/+15.9%/-8.7%/+158.1% year-on-year, and the energy saving business increased markedly. Faced with sluggish demand in the metallurgical industry, the company increased the promotion of “Valve Manager”, improved the effectiveness and timeliness of spare parts through full-cycle services, and shaped differentiated competitiveness. In response to the rapidly developing hydrogen energy market, the company has developed high-pressure hydrogen gas and cryogenic liquid hydrogen hydrogen energy valves. The former has been successfully applied in the Sinopec Kuqa project. We believe that the company has sufficient orders, and confirmed revenue is expected to contribute to stable performance growth in the future as orders are released.
Profitability has improved markedly, and cash dividends have increased dramatically. In 2023, the company's gross margin/net margin was 31.7%/12.6%, respectively, +1.8/+1.0ppt; continued to increase R&D investment, with sales/management/R&D/finance expense ratios of -0.6/+0.6/-0.3ppt respectively; net cash flow from operating activities was 185 million yuan, a decrease of 24.9% year on year. In 2023, the company plans to distribute a cash dividend of 81 million yuan, accounting for 25.4% of net profit in 23, an increase of nearly 14.3 ppt over '22.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 19.6x/16.0x. It maintained an outperforming industry rating, but due to rising sentiment in the nuclear power sector, we raised our target price by 11.9% to 15.00 yuan, which corresponds to 22.4 times the 2024 price-earnings ratio and 18.3 times the 2025 price-earnings ratio. There is 14.5% room for growth compared to the current stock price.
risks
Nuclear power construction fell short of expectations, payback for energy saving services fell short of expectations, and demand in the metallurgical industry was sluggish.