Description of the event

The company released its 2023 annual report and 2024 quarterly report. Revenue in 2023 was 27.9 billion yuan, a year-on-year decrease of 9%; net profit of 370 million yuan, a year-on-year decrease of 89%. 2024Q1's revenue was 5.1 billion yuan, up 85% year on year; net profit was 300 million yuan, reversing the loss year on year.

Incident comments

On a full-year basis, the company's revenue in 2023 declined year on year, achieving gross margin of about 11.2% and a year-on-year decrease of about 8.7pct.

The company achieved an expense ratio of about 10.9%, an increase of 1.8 pct over the previous year. Among them, the sales expense ratio, management expense ratio, and financial expense ratio were 5.0%, 3.4%, and 0.3%, respectively, increasing 1.2 pct, 0.8 pct, and 0.5 pct, respectively, and the R&D expenditure rate was 2.1%, down 0.6 pct year on year. Looking at the specific split business: 1) Fan and related accessories business: the company's fan and accessories sales revenue was 235 billion yuan, up 3% year on year, and the gross profit margin was reduced by 11.4 pct year on year, which is expected to be mainly due to the drop in land fan delivery prices; 2) In terms of power plant operation, the company operated 2.6 GW of power plant power plants at the end of the year, achieving a year-on-year increase of 1.5 billion yuan, a gross profit margin of 63%, and a year-on-year increase of 3 pcts; 3) Power plant product sales: The company achieved sales revenue of 2.1 billion yuan, a year-on-year increase of 63%, and a year-on-year increase of about 31%. 9pct. At the same time, the company's investment income in 2023 was 840 million yuan, and the final profit in 2023 was 370 million yuan. 2023Q4 lost money, which is expected to be mainly due to the lower price of land fans.

On a quarterly basis, the company's 2024Q1 revenue is expected to increase significantly, mainly due to increased fan shipments, gross margin of about 20.6%, an increase of about 7 pcts over the same period last year. The company's cost ratio during the implementation period was about 16.1%, a year-on-year decrease of 7.5 pct. Among them, the sales expense ratio, management expense ratio, financial expense ratio, and R&D expense ratio were 6.1%, 5.3%, 1.0%, and 3.7%, respectively, with a year-on-year decrease of 0.4 pct, 2.9 pct, 2.0 pct, and 2.2 pct, respectively. In the end, the company achieved a year-on-year increase in profit, which is expected to contribute to increased profits due to increased shipments combined with wind farm transfers.

Looking ahead, we believe that the installed capacity of Sea Breeze is expected to nearly double to 10 GW in 2024, and the company is expected to upgrade its product structure. The company continues to sell power plant assets, which is expected to contribute to increased performance. At the same time, the company is actively promoting collaborative cost reduction in the industrial chain, which is expected to boost the gross profit of the Lufeng project, which in turn will drive profit recovery in 2024. The company is expected to achieve a net profit of about 2.3 billion yuan in 2024, which is about 10 times PE. Maintain a “buy” rating.

Risk warning

1. Wind power installation falls short of expectations;

2. Increased competition has led to profitability falling short of expectations.