Key points of investment

Revenue achieved steady growth, and net profit to mother increased slightly

With 2024H1, the company achieved revenue of 4.068 billion yuan, up 10.31% year on year; net profit to mother was 0.644 billion yuan, up 4.47% year on year; net profit after deducting non-return to mother was 0.548 billion yuan, down 9.50% year on year; current non-recurring profit and loss were mainly due to the company's benefits from disposal of illiquid assets and receipt of government subsidies; 2024H1 gross profit margin was 22.43%, down 6.19 pcts month on month. The decline in the company's gross margin was mainly due to a decrease in gross margin of submarine cable products. 2024Q2 achieved revenue of 2.758 billion yuan, up 110.43% month-on-month, or 22.55%; net profit to mother of 0.381 billion yuan, up 44.57% month-on-month, up 5.54% year-on-year; and gross profit margin of 22.52%, up 0.29pct month-on-month.

Land and sea cable achieved another good performance, and the gross margin of sea cable is under pressure in the short term

By business, 2024H1 submarine cable system revenue was 1.485 billion yuan, down 10.34% year on year, gross profit margin was 39.38%, down 11.71 pct year on year; land cable system revenue was 2.294 billion yuan, up 25.91% year on year, gross profit margin was 9.94%, up 1.18 pct year on year; marine engineering revenue was 0.284 billion yuan, up 37.83% year on year, gross profit margin was 33.75% year on year, up 10.76 pct year on year. The gross margin of the company's submarine cable business is mainly due to the fact that few projects entered the submarine cable delivery stage in the first half of 2024, and the competitive pattern in the industry intensified, leading to short-term structural mismatches between supply and demand. As the original postponed projects enter the delivery stage, overseas submarine cable orders spill over to the domestic market, and gross margin is expected to improve.

Ongoing orders continue to grow, and overseas orders account for an impressive share

As of August 12, 2024, the company had orders of 8.905 billion yuan, of which 2,949/4.523/1.433 billion yuan for submarine cable systems/land cable systems/marine engineering, 220 kV and above sea cables and umbilical cord cables accounted for about 22% of the total number of orders in hand, and international orders accounted for nearly 29% of the total number of in-hand orders. Overseas orders continued to break through. The company won about 0.15 billion yuan for British SSE's submarine cable and 1.8 billion yuan for Inch Cape Offshore's submarine cable, and signed a “Offshore Wind Power Product Supply Agreement” with Wo Xu and PGE—Poland Power Grid's joint ventures. The company supplied the entire wind farm 66kV submarine cable and supporting accessories for the Baltica 2 Seabreeze project, with a total contract amount of nearly 0.35 billion yuan.

The production capacity layout is scientific and reasonable, and the two major bases watch and help each other

The company built and put into operation a future factory located in Beilun, Ningbo, and built a southern industrial base with Yangjiang, Guangdong as the core. The two major industrial bases are interconnected and are watching and helping each other. The wholly-owned European subsidiary in Rotterdam, the Netherlands, is positioned in Europe and provides a global supply chain development and after-sales service perspective. Under the deep-sea trend, high-voltage submarine cables have high stability, low loss, and technical characteristics of high standards, high threshold, and high risk. The company has equipment such as 500kV AC sea-land cable systems and ±535kV DC sea-land cable systems, and all technologies have reached the leading international level.

Profit forecasting and valuation

Maintain profit forecasts and maintain a “buy” rating. The company is the core supplier of domestic submarine cable systems. Domestic submarine cable projects have entered the delivery stage, and the pace of submarine cables going overseas will accelerate. We expect the company's net profit to be 1.314, 1.826, and 2.198 billion yuan respectively in 2024-2026, corresponding EPS of 1.91, 2.66, and 3.20 yuan, respectively, and the corresponding PE is 25, 18, and 15 times the corresponding PE, respectively. Maintain a “buy” rating.

Risk warning: wind power installed demand falls short of expectations; raw material prices fluctuate; risk of product price fluctuations.