Investment highlights
For the first time, Daikin Heavy Industries (002487) was covered to give it an outperforming industry rating. The target price was 26.28 yuan, which is 26 times the 2024 valuation multiplier based on the relative price-earnings ratio valuation method. The reasons are as follows:
Leading overseas fan infrastructure manufacturers are relatively full of orders. Starting in 2026, overseas fans may gradually form a local supply gap for offshore fan infrastructure. According to our statistics, by the end of 2026, overseas will have a basic production capacity of nearly 1.7 million tons of local fans, which can basically support the installation of about 85GW of offshore wind power. According to BNEF estimates, it is expected that 13 GW of new offshore wind installations will be added overseas in 2026 and will continue to grow. We judge that overseas will follow up and gradually form a local supply gap for offshore fans, and we have observed that the Dutch head fan infrastructure manufacturer SIF's in-hand orders by the end of 2023 have filled the effective production capacity for 2024-2025.
Export business: The company has achieved high profits by delivering single piles in batches in Europe, and it is expected that new overseas offshore orders will continue to be implemented. Since 2022, Daikin Heavy Industries has successively received single offshore wind power orders from many European countries, including Britain, France, Germany, and Denmark. Among them, 48 single piles from the Moray West project in the UK were successfully delivered in 2023. In 2023, the company's share of overseas revenue increased to 40%, and the gross margin of export sales reached 27.2%, higher than the gross margin of domestic sales of 11ppt during the same period, further verifying the high profitability of individual exports. The company continued to expand production at offshore export bases in Panjin, Liaoning and Tangshan, Hebei, and built its own specialized offshore international shipping fleet to further strengthen the competitiveness of the company's offshore products. We expect the company to continue to land more offshore export orders in 2024.
Domestic sales business: The land tower sales and power generation business contributed to a stable basic market. The domestic sea tower and basic sales business is expected to benefit from the demand for offshore wind power installations in Guangdong and the Bohai Rim region. Along with the stabilization of profits in the domestic turret sector, we expect that the company's 500,000 tons of land tower production capacity in the Sanbei region is expected to contribute to a stable performance base. The company's offshore base layout is expected to benefit from increased domestic demand for offshore wind power installations in Guangdong and the Bohai Rim region. In addition, the company has extended the development and operation of new energy downstream. Currently, it has put into operation a 250MW wind farm in Fuxin, Liaoning, and the power generation business is expected to further increase its performance.
What is our biggest difference from the market? The market is concerned about the sustainability of exports of marine products. We are optimistic that the company will continue to promote the transformation of the offshore export business against the backdrop of continued tight supply and demand for overseas fans.
Potential catalyst: The company's new offshore export orders continue to land.
Profit forecasting and valuation
We expect the company's 2024/2025 EPS to be 1.01 yuan, 1.46 yuan, and CAGR of 47.8%, respectively. The current stock price corresponds to 20.8 times/14.4 times the 2024/2025 price-earnings ratio. We covered Daikin Heavy Industries for the first time, giving the company a rating that outperforms the industry, and gives a target P/E of 26x for 2024, corresponding to a target price of 26.28 yuan, with 25.0% upside compared to the current stock price.
risks
Overseas ocean wind construction falls short of expectations; marine product export quality risks; international shipping business operation risks; capacity expansion falls short of expectations; industry competition intensifies compression of product profits; and international trade and exchange rate risks.