Key points of investment
Short-term performance is under pressure, and delivery of the Sea Breeze project is delayed
In 2023, the company achieved revenue of 45.07 billion yuan, +11.9% year-on-year; net profit to mother was 3.12 billion yuan, -3.0% year-on-year. Among them, the optical communications sector showed steady performance, with gross margin increasing by 3 pct to 27.1%; the revenue of the marine sector was 3.74 billion yuan, 48.9% year-on-year, mainly affected by domestic installation progress and delayed delivery. The gross margin was 26.65%, -7.1 pct year on year, mainly affected by product structure; the power grid construction sector had revenue of 16.741 billion yuan, +36.4% year on year; and the new energy sector had revenue of 7.209 billion yuan, up 119 percent year on year, maintaining a high growth rate.
In 24Q1, the company achieved revenue of 8.24 billion yuan, -0.4% year-on-year, and net profit to mother of 640 million yuan, or -17.2% year-on-year.
The company's performance in the first quarter was under pressure, and we think it was mainly hampered by delayed delivery of the Sea Breeze project.
Energy network: Electricity is steady, the ocean is expected to recover, and new energy sources are gradually picking up. As of March 31, 2024, the company's on-hand orders for the energy network sector are about 26 billion yuan, including about 11.5 billion yuan for marine series, 12.5 billion yuan for power grid construction, and 2 billion yuan for new energy sources.
Offshore sector: The impact of multiple factors such as the domestic sea wind market, military, and waterways is gradually being eliminated. Multiple submarine cable projects are progressing steadily, and 66kV cross-linked polyethylene insulated AC dynamic submarine cables have been successfully developed. The deep-sea project is poised to begin. At the same time, the company continues to strengthen offshore capabilities and cooperates with Goldwind Technology and Haili Wind Power on new offshore vessels. In addition, the company has further improved overseas sales channels, continuously improved its capabilities in bidding and project management, and international market orders have reached the highest level in history. In the oil and gas market, the company achieved a new breakthrough in submarine cable voltage ratings.
New energy: The company has sufficient photovoltaic and energy storage projects. As the project progresses and is implemented, the new energy business is expected to release scale to form a new impetus, the price of upstream raw materials will drop, and profitability is expected to increase. It has won bids for several energy storage system integration projects in overseas regions such as Germany and Ethiopia. Furthermore, the company is actively deploying hydrogen energy.
Power grid construction: The company maintains a leading position in the market in major power products and has won bids for several UHV projects. As the construction of new power systems in China continues to advance, the company's power grid construction revenue and profitability are expected to increase steadily.
Communication networks: Benefiting from the rising boom in the digital economy and AI industry, the digital economy and AI are driving steady growth in communication network devices, and the company maintained the leading ranking and share in operator tenders in 2023. Optical fiber cables maintain technological leadership, and the company continues to increase production capacity in overseas factories, strengthen rapid regional delivery capabilities, and consolidate large-scale competitive advantages.
Profit forecasting and valuation
Zhongtian Technology is a domestic optical cable giant. It has formed four major business lines: optical communication+marine+power transmission+new energy. The marine and new energy business is developing rapidly, and the power and optical communication business is growing steadily. In the short term, due to delays in the Haifeng project, the company's performance is expected to maintain steady growth with the opening of the relevant aspects of the Shenyuan Sea Project. We expect net profit to be 3,575 billion yuan, 4.216 billion yuan, and 4.80 billion yuan respectively in 2024, corresponding to PE 13x in 2024, maintaining a “buy” rating.
Risk warning
Submarine cable demand falls short of expectations; industry competition intensifies; new energy business expansion falls short of expectations