Q1 Performance exceeded expectations, and profitability gradually increased

In 2023, the company achieved revenue of 47.622 billion yuan, +2.49% year on year, realized net profit of 2.54 billion yuan, +35.77% year on year, net profit without return to mother was 2,033 billion yuan, +31.7% year on year. Gross margin was 15.31%, +1.14pct. By business, the optical communications business remained stable, revenue side -3% YoY, cost control was strengthened, and gross margin continued to improve, +9.27pct year-on-year, at 29.36%. The smart grid sector will adjust the new energy business to the industrial control and new energy sector to eliminate this part of the impact, and the business will grow steadily. The marine energy and communications business was affected by installations and deliveries. Revenue was -25% year-on-year, and gross margin remained stable at 32.8%.

In 24Q1, the company achieved revenue of 11.784 billion yuan, +8.45% year-on-year, and realized net profit of 513 million yuan, +29.87% year-on-year. Net profit after deducting non-return to mother was 411 million yuan, +13.9% year-on-year. We expect to benefit mainly from the boom in the electricity sector and the company's continued drive to reduce costs and fees.

The energy sector has sufficient orders in hand, and land cables are booming. The offshore sector is expected to recover by the end of 2023. The company has about 18.5 billion yuan in on-hand orders in energy connectivity fields such as submarine cables, marine engineering, and land cable products.

Offshore sector: The company has successively won bids for many domestic and foreign submarine cable and offshore projects, and the submarine cable business entered the Mexican market for the first time. In terms of submarine cables, the first phase of the Sheyang production base was completed, and the construction of the Jieyang production base was actively promoted.

In terms of offshore engineering, the focus is on promoting the construction of a new generation of large-scale deep-sea fan installation vessels, which can meet the hoisting of deep-water fans within 70m. It is expected to be completed within 2024.

Smart grid sector: The construction of domestic UHV power grids has been accelerated once again. The company has strengthened its market position in the field of high voltage power transmission and successfully delivered the 220kV ultra-high cross-section smooth aluminum transmission system for Huaneng Shantou Lemen Offshore Wind Power Access System Project, providing the first system solution for domestic high voltage power transmission.

The optical communication business optimizes the product structure, and Ocean Communications is ordering 5.5 billion yuan of marine communications: The company provides high-reliability, high-flexibility, cost-effective, one-stop submarine optical cable network solutions worldwide, and works with domestic and foreign telecom operators, oil and gas operators. By the end of '23, the total delivery mileage of global submarine optical cables had exceeded 94,000 kilometers, with on-hand orders of about 5.5 billion yuan.

Optical Communications: The company continuously optimizes existing products and business structures, accelerates the development of high-end products and specialty products and the transformation of market results, and lays out the communication network industry in Europe, South America, South Asia, Africa, Southeast Asia and other countries and regions. At the same time, we are actively promoting the batch application of 400G/800G optical modules.

Profit forecasting and valuation

The company is a leading domestic optical cable company. The smart grid business remains booming around the two core fields of communication and energy interconnection. The submarine cable business is expected to resume, and the optical communication business will improve efficiency and reduce costs. We expect net profit from 24-26 to mother of 26.66 to 33.96 billion yuan, corresponding 13 times PE in 24, maintaining a “buy” rating.

Risk warning

Offshore wind power development falls short of expectations, optical communication demand falls short of expectations, cable demand falls short of expectations