Matters:
The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 27.859 billion yuan, a year-on-year decrease of 9.39%, net profit of 372 million yuan, a year-on-year decrease of 89.19%, net profit after deduction of 206 million yuan, a year-on-year decrease of 93.36%; EPS 0.16 yuan, to distribute a cash dividend of 3.041 yuan for every 10 shares; and achieved revenue of 5,075 million yuan in the first quarter of 2024, an increase of 84.60% year-on-year, and a net profit of 304 million yuan.
Ping An's point of view:
Factors such as a sharp drop in the gross margin of fans led to a sharp decline in 2023 results. In 2023, the company's net profit to mother fell 89.19% year on year. The main influencing factor was the decline in the gross margin of the fan business. In 2023, the company's fan and accessories business revenue was 23.52 billion yuan, up 3.11% year on year, and gross profit margin was 6.35%, down 11.42 percentage points year on year. It is estimated that the fan business as a whole showed a large loss in 2023.
Specifically, the gross margin of 3.XMW-5.XMW fan products fell 9.58 percentage points to 3.35% year on year, and the gross margin of fan products above 6.XMW fell 17.52 percentage points to 7.92% year on year, indicating that the company's onshore fans and offshore fans both showed a significant decline in gross margin. We estimate that the sharp decline in the gross margin of onshore fans may be related to factors such as high product design redundancy and low supply chain maturity due to technical route switching. The decline in the gross margin of offshore fans may be related to high costs due to tight delivery periods for individual projects. In addition to the decline in the gross margin of the fan business, factors such as an increase in cost rates and a year-on-year increase in credit impairment due to the expansion period of many of the company's businesses also dragged down the company's 2023 performance.
Improvements in the fan and power plant business helped turn losses into profits in 2024Q1. The company's net profit for the first quarter of 2024 was 304 million yuan, turning a loss into a profit. On the one hand, the volume and profit of the company's fan business have all improved. It is estimated that fan shipments in the first quarter were 1.4-1.5 GW, with a year-on-year increase of more than 50%, and gross margin of more than 7%. On the other hand, it is estimated that the company achieved sales of power plant products on a certain scale in the first quarter. At the same time, the scale of the company's own power plants increased dramatically year-on-year, and power generation revenue increased.
The profit level of the fan business is expected to gradually recover, and a high increase in shipments can be expected. In 2023, the company achieved overseas sales of 9.69 GW of fans, an increase of 32.66% over the previous year. The main corresponding seabreeze projects include Guangdong Electric Qingzhou 1/2, CGN Huizhou Port 2 PA/PB, China Power Investment Corporation's Shandong Peninsula South U1 site, and Huaneng's Shandong Peninsula North BW site. Revenue from fans and related accessories in 2023 was 23.52 billion yuan, up 3.11% year on year, and gross profit margin was 6.35%, down 11.42 percentage points year on year. Considering cost optimization at the component procurement level and optimization of the company's onshore fan design redundancy, fan gross margin is expected to rise year on year in 2024. It is estimated that the company added more than 18 GW of new fan orders in 2023, with more than 30 GW in hand by the end of 2023, and fan shipments are expected to continue to increase in 2024.
The contribution to the power plant business performance is expected to continue to grow. In 2023, the company's power generation business revenue was 1,499 billion yuan, up 12.24% year on year, and gross margin was 63.00%, up 3.12 percentage points year on year. By the end of 2023, the installed capacity of the new energy power plants in operation by the company was 2.56 GW, an increase of 70.47% over the previous year, and the capacity under construction was 3.30 GW. In 2023, the company's power plant product transfer business revenue was 2.08 billion yuan, a year-on-year decrease of 63.34%, and a gross profit margin of 30.97%, showing good profitability. The company obtained a large number of wind farm development indicators in 2023, including the first, second, and fourth offshore wind power projects in Honghai Bay, Shanwei. It is expected that in 2024, the company will continue to increase its development efforts while increasing the transfer and sales of power plant products. The performance contribution of power generation and power plant transfers is expected to increase significantly year-on-year in 2024.
Investment advice. Considering the current fan competition situation and the cost situation of the company's fan business, the profit forecast is adjusted. Net profit of 2024-2025 is estimated to be 20.38 billion yuan and 3.491 billion yuan (original forecast values of 5.535 billion yuan, 7.313 billion yuan), and an additional profit forecast of 4.583 billion yuan for 2026. The corresponding dynamic PE is 11.2, 6.6, and 5.0 times, respectively. Affected by factors such as increased competition in the industry and the adjustment of the company's onshore fan technology route, the company's fan gross margin showed a clear decline. With the maturity of onshore double feed products and the company's cost reduction and fee control effects, the subsequent fan business profit pressure problem is expected to gradually ease; the company's offshore fan leading position is stable, leading the business layout of hydroamine, floating, international, etc., and there is broad room for future growth, maintaining the company's “recommended” rating.
Risk warning. (1) Domestic offshore wind power development is affected by various aspects such as military and maritime use, and there is a risk that phased demand falls short of expectations; (2) there is a risk that the company's market share and profit level will fall short of expectations due to the worsening competition situation for offshore fans; (3) the risk that overseas trade protection will increase and the company's export business falls short of expectations; (4) there is a risk that the development of emerging businesses such as corporate heterogeneity and perovskite falls short of expectations.