Core views
Benefiting from high downstream prosperity, increasing recognition from overseas customers, and the high-end product structure of the company, the company's ability to take orders continues to be reflected. The revenue side has achieved rapid growth, the profit side gross margin has increased significantly, and cost control has been effective, so that the net profit growth rate continues to exceed expectations. Looking ahead, the company is currently rich in downstream fields, and the prosperity of the main industries is relatively high. The high-end strategy for the company's products has begun to gain strength with years of R&D investment, and it is expected that the product volume and price will rise sharply in the future.
occurrences
In 2023, the company achieved operating income of 5.544 billion yuan, a year-on-year increase of 36.59%, and realized net profit of 722 million yuan, a year-on-year increase of 54.85%; in the first quarter of 2024, the company achieved operating income of 1,360 million yuan, an increase of 24.54% over the previous year, achieved net profit of 197 million yuan, an increase of 100.45% over the previous year, and achieved net profit of 94 million yuan, an increase of 91.56% over the previous year.
Brief review
Benefiting from the high downstream boom and product structure optimization in 2023, the company's valve products include gate valves, globe valves, check valves, ball valves, butterfly valves, forged steel valves, and safety valves, which achieved sales volumes of 220,700 units, 22,900 units, 261,000 units, 261,000 units, 261,000 units, 0.46 million units, and 0.46 million units, respectively. The product quality and continuous innovation of the company's high-end products, ball valves and butterfly valves, respectively. Capabilities have been recognized by major end users and engineering companies in the global industry, and are widely used in various fields with harsh working conditions and high demand around the world, achieving faster growth than other products in 2023.
From a downstream perspective, the company continues to develop deep strategic cooperation with global energy industry giants such as SHELL, TOTAL, CNPC, and Sinopec, while continuously expanding market penetration. Apart from traditional oil and gas energy projects, the company's products are rapidly expanding in LNG, fine chemicals, offshore, pipeline transportation, nuclear power and other markets, and are also gradually being used in clean energy development projects such as marine wind power, hydrogen energy, geothermal energy, bioenergy, solar energy, and carbon capture. In a situation where the overall boom is relatively high, the company's high-quality products achieved rapid growth in overall order volume and revenue after being verified.
Looking at the regional structure, the company achieved overseas revenue of 3,028 billion yuan in 2023, up 27.41% year on year, accounting for 55.31%, and achieved domestic revenue of 2,447 billion yuan, up 48.28% year on year, accounting for 44.69%. Considering that there is a certain time lag from order to revenue confirmation, we expect overseas business to account for a relatively high share of new orders in 2023.
In terms of profitability, in 2023, the company achieved a gross profit margin of 31.40%, a year-on-year increase of 0.89pct, achieving a net sales margin of 13.24% and a year-on-year increase of 1.56pct. Judging from the cost ratio, the sales expense ratio, and the R&D expense ratio were 7.81%, 3.41%, and 3.35%, respectively, with year-on-year changes of -0.96pct, -0.55pct, and -1.0pct, respectively. The significant increase in profitability mainly comes from: ① improving production efficiency by optimizing the process flow, replanning the process layout, and introducing automated equipment such as body ring self-fusion welding equipment to reduce production costs; ② high-end products are gradually being recognized, and the proportion of products with high gross margin has increased to a certain extent; ③ strengthening cost control and optimizing the allocation of company resources to improve operational efficiency and further reduce costs.
The ability to take orders continued to be realized in the first quarter of 2024. Performance growth exceeded expectations in the first quarter of 2024, and the company's revenue achieved relatively rapid growth. Supported by high downstream prosperity and continuous verification of the company's products, it is expected that the company's growth rate of new orders in the first quarter will continue to grow rapidly, and its ability to take orders will continue to be realized. Judging from profitability, the company achieved a gross profit margin of 33.50% in the first quarter, an increase of 4.66 pcts year on year, achieving a net profit margin of 14.67%, a year-on-year increase of 5.65 pcts. The sharp increase in profitability was mainly due to the low price in the first quarter of 2023 Order delivery and relatively high raw material prices led to a lower year-on-year base, and the gradual upgrading of the company's products also led to an increase in the gross margin of current products.
Looking ahead, it is expected that with the gradual increase in the company's share of overseas revenue and the gradual expansion of high-end products, the subsequent profitability center is expected to rise.
Investment advice: In 2024-2026, the company is expected to achieve operating income of 6.506 billion yuan, 7.471 billion yuan, and 8.499 billion yuan, respectively, up 17.34%, 14.84%, and 13.75% year-on-year net profit of 859 million yuan, 998 million yuan, and 1,154 million yuan, respectively, up 19.05%, 16.11%, and 15.70% year-on-year respectively, corresponding PE of 17.33x, 14.92x, and 12.90x respectively.
Risk analysis
1. Risk of cyclical fluctuations in the oil and gas industry. The company's products are mainly used in oil and gas related industries such as oil extraction and refining, and oil and gas transportation pipelines. Therefore, cyclical fluctuations in the industry have an important impact on the company's sales. Currently, geographical friction has a great impact on raw material prices and oil prices, increasing the uncertainty of the energy layout.
2. Risk of fluctuations in raw material prices. Affected by international macroeconomic effects and fluctuations in the cost of upstream raw materials, if the cost side price rises significantly, it will have a certain impact on the company's future gross profit.
3. Risk of exchange rate fluctuations. The company's exports account for a relatively high share, and export revenue is mainly settled in US dollars. If the RMB appreciates rapidly in the short term, it may directly lead to a decrease in the company's assets and revenue reflected in the RMB currency.