Incidents:

Huatong Cable released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 5.364 billion yuan, +3.30% year-on-year, gross profit margin of 17.59%, an increase of 3.12 pcts year-on-year, and achieved net profit of 364 million yuan, +41.74% year-on-year, and a net profit margin of 6.79%. By business, the wire and cable business revenue was 3.75 billion yuan, +9.08% year over year, gross profit margin was 14.99%, +3.66 pcts year on year; oil service business revenue was 1,401 billion yuan, -8.07% year over year, gross profit margin of 23.78%, +2.73 pcts year on year. By region, the company's overseas business revenue was 3,539 billion yuan, +6.64% year-on-year, accounting for 65.98% of the company's revenue, and a gross profit margin of 19.85%, +4.38pcts year-on-year.

24Q1 achieved operating income of 1,380 million yuan, +7.35% year-on-year, gross profit margin of 16.88%, an increase of 0.36 pcts year-on-year, and realized net profit of 90 million yuan, +83.26% year-on-year, and a net profit margin of 6.52%.

Global layout of the cable business, continuous improvement of production capacity and sales network:

The company continues to adhere to the strategy of “equal emphasis on domestic and foreign markets, and simultaneous development of developed and emerging markets”. The domestic market forms a “brand, technology, team, dealer, e-commerce” marketing and service system, and a development model with equal emphasis on volume, breadth and product segmentation, with equal emphasis on product quality and production scale. The international market focuses on improving product quality and service levels, and strengthening risk control of exchange rate fluctuations and raw material price fluctuations.

The company strengthens overseas production capacity and sales channel construction. The company's products have obtained international certifications such as US UL, EU CE, German TUV, Singapore PSB, etc., and domestic certifications such as CRCC and CCC in China. It is one of China's leading enterprises in terms of numbers in the field of international wire and cable certification, especially the US UL certification. For the African market, production bases in Tanzania and Cameroon have been built on the east and west coasts of Africa, and production capacity investment amounts have been increased one after another, covering neighboring countries and regions, and expanding the company's competitiveness in the African region. For the North American market, a production base was built in Busan, South Korea, and the construction of the Panamanian production base is being accelerated to enhance the company's supply stability to North American customers.

Oil service business orders are improving, and the market continues to expand:

Since 2014, the company has successively overcome the equipment and process problems of continuous pipe manufacturing and extended it to work equipment. The subsidiary Cinda Innovation is one of only six continuous tubing companies in the world that have obtained API-5ST certification. The subsidiary Huaxin Petroleum is positioned as a continuous tubing machine sales and technical service. The company's layout in the oil service field has been initially formed and gradually extended, and is committed to becoming a comprehensive service solution provider in the oil and gas service sector.

Orders for the company's continuous tubing products and smart pipe cable products continue to increase, and it continues to incubate new products to increase investment in scientific research. On the market side, the company has supplied domestic and foreign oil fields or oil service companies such as CNOOC, CNPC, Halliburton, and Schlumberger, etc., and has further developed the oil service market outside of North America, increased the sales coverage area of the company's oil service products, and expanded the market scope.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 63.50/76.79/8.974 billion yuan, respectively, with growth rates of 18.4%/20.9%/16.9%, and net profit of 4.64/6.77/875 million yuan, respectively. Growth rates are 27.4%/46.0%/29.1%, respectively, with outstanding growth. The company was given 15 times PE in 2024, with a target price of 13.65 yuan for 6 months, and an investment rating of Buy-A.

Risk warning: risk of cyclical fluctuations in the oil and gas industry; risk of fluctuations in raw material prices; risk of changes in overseas trade policies; risk of exchange rate fluctuations; risk of profit forecasts and assumptions falling short of expectations.