occurrences

The company recently released the 2023 Annual Report and 2024 Quarterly Report. In '23, the company achieved revenue of 4.656 billion yuan, a year-on-year decrease of 4.3%, and achieved net profit of 482 million yuan, an increase of 39.8% over the previous year, after deducting non-net profit of 425 million yuan, an increase of 60.5% over the previous year. The company's gross margin in '23 was 18.7%, +5.8pct year on year, net margin was 10.3%, +3.2pct year on year. In the first quarter of 2024, the company achieved revenue of 697 million yuan, a year-on-year decrease of 34.96%. Net profit to mother was 86.8 million yuan, a year-on-year decrease of 33.98%, after deducting non-net profit of 70.45 million yuan, a year-on-year decrease of 37.35%. The company's gross profit margin for the first quarter of '24 was 21.77%, +1.37pct year on year, net profit margin was 12.28%, and +0.06pct year on year.

Comment:

The average price of casting products declined due to large-scale expansion, and profitability increased year-on-year. In 2023, the company's casting industry product revenue was 4.618 billion yuan, down 4.44% year on year, operating cost was 3.764 billion yuan, down 10.77% year on year, gross margin was 18.48%, +5.79 pct year on year. In 2023, the company shipped 447,500 tons of casting products, with an average price of 10,320 yuan/ton, down 0.39% and 4.06% from 449,300 tons and 10,757 yuan/ton in 2022, respectively. We believe that the unit price of the company's casting products has declined due to large-scale expansion in recent years, but as an industry leader, the company is still capable of obtaining high profit margins.

Production capacity expansion is progressing steadily, and large-scale castings are being developed at an accelerated pace. By the end of 2023, the company had an annual foundry production capacity of 700,000 tons. According to the established strategy, the company is steadily advancing various production capacity improvements. The planned 132,000 tons of foundry capacity has already been put into operation, and the construction of the Gansu Riyue “200,000 tons per year (first phase 100,000 tons) project entered the production stage in March 2023. At the same time, the company closely follows the current trend of larger fans and develops casting products for large fans. Currently, it has the capacity to cast large ductile iron parts with a maximum weight of 250 tons, which is at the leading level in the industry.

R&D investment continues to grow, and new casting products are launched. In 2023, the company's R&D expenses reached 259 million yuan, an increase of 16.77% over 2022. The continuous increase in R&D investment has brought about continuous breakthroughs in technical strength. As of December 31, 23, the company has obtained a total of 156 authorized patents, including 59 invention patents. In the field of wind power, the company participated in the design and development of large-scale offshore and onshore wind power products for customers, and achieved batch shipment of domestic large megawatt models and offshore fan products; in the field of alloys, the company successfully developed cast steel products made of special materials such as low alloy steel and chromium-molybdenum steel, improved the verification of process parameters throughout the process, and achieved batch shipment. In the field of nuclear power, trial production and performance testing of nuclear waste storage tank products have been completed and approved by customers, and the production and delivery of prototypes has been completed.

Profit forecast: The company has a leading edge in the field of wind power castings. We expect net profit to be 670 million and 800 million yuan for 24 and 25, respectively. The closing market value as of April 30 was 18.8 or 14.4 times PE in 24-25.

Risk factors: risk of offshore wind power development falling short of expectations, risk of fluctuating raw material prices, risk of increased industry competition.