Key points of investment
Incident: The company released its 2024 mid-year report. 24H1 achieved revenue of 4.068 billion yuan, +10.31% year over year; net profit to mother of 0.644 billion yuan, +4.47% year over year; gross profit margin 22.43%, -6.19pct year on year; net profit to mother of 0.548 billion yuan after deducting non-recurring profit and loss, -9.50% year over year.
The land cable business is impressive, and the prospects for submarine cables are promising. On a quarterly basis, the company's 24Q2 revenue and net profit attributable to mother were 2.758/0.381 billion yuan, respectively, +22.55%/+5.54% YoY, and +110.43%/+44.57% month-on-month. There was a significant increase over Q1. Mainly the volume of land cable systems increased sharply. By business, 24H1 achieved revenue of 2.294/1.485/0.284 billion yuan, or +25.91%/-10.34%/+37.83%, respectively; gross margins were 9.94%/39.38%/33.75%, respectively, +1.18/-11.71/+10.76pct. The share of land cable revenue increased, and submarine cable revenue and gross profit were under pressure for a short time. During the reporting period, the commencement of domestic Sea Breeze construction and slightly lower tenders than expected affected the pace of implementation of the company's domestic submarine cable orders, but favorable policies and continuous competition approval for the Sea Breeze project. Up to now, domestic demand for over 30 GW grid-connected installations has not been released, and demand is highly deterministic. With the Qingzhou and Fanshi projects in Guangdong making new progress, domestic seabreeze stock projects are expected to enter the construction phase one after another in the second half of '24, and the company's submarine cable business can be expected to recover.
Ongoing orders are growing steadily, and we are actively planning the industrial layout in the North. The company successively won bids for land cable systems such as China Southern Power Grid Corporation, Guangxi Guangzhou Investment, State Grid Hubei Electric Power Co., Ltd., Ningbo Railway Yongying Supply Chain, State Grid Zhejiang Electric Power, Shanghai Electric Power Company, State Grid Shaanxi Electric Power Company, etc.; it won about 2.3 billion yuan for submarine cable systems and marine engineering. As of August 12, 2024, the company's on-hand orders were 8.905 billion yuan (+24.77% month-on-month), including 2,949 billion yuan for submarine cable systems, 4.523 billion yuan for land cable systems, 1.433 billion yuan for marine engineering, and 220 kV and above sea cables and umbilical cord cables account for about 22% of the total orders in hand, which can effectively support the performance. In June 2024, the company signed an “Investment Cooperation Agreement” with the Laizhou Municipal People's Government to invest 1.5 billion yuan in the construction of a high-end submarine cable system northern industrial base project in Laizhou City, Yantai, Shandong Province. In August 2024, the company plans to invest 0.2 billion yuan of its own capital to establish a wholly-owned subsidiary in Laizhou, Yantai, Shandong Province, to further improve the company's submarine cable production capacity layout and enhance its advantages in taking orders. The company's share in northern markets such as Shandong is expected to increase significantly in the future.
Overseas orders have achieved a breakthrough, and the European layout has been strengthened. In January '24, the company took a stake in Xlinks First and XLCCLimited in the UK and continued to strengthen its European business layout, which is expected to continue improving the company's ability to obtain orders. Recently, Oriental Cable won about 2 billion overseas submarine cable orders (about 0.15 billion yuan for British SSE submarine cables and 1.8 billion yuan for InchCape Offshore submarine cables). As of August 12, 2024, the company's international orders accounted for nearly 29% of the total number of orders in hand. Overseas sentiment is expected to continue to materialize, and expectations for the release of sea breezes and overseas orders will continue to increase.
Investment advice: The global development of offshore wind power has shown a booming trend. The company has a remarkable advantage in the field of submarine cables, and is optimistic about the company's development prospects. Based on the pace of domestic sea breezes in the first half of the year, we slightly adjusted our profit forecast. We expect net profit to be 13.09, 19.07, and 2,443 billion yuan respectively for 2024-2026, corresponding to EPS of 1.90, 2.77, and 3.55 yuan/share, corresponding to PE26, 18, and 14 times PEs, maintaining a “buy-B” rating.
Risk warning: 1. Prices of raw materials have risen sharply; 2. Installed wind power is lower than expected; 3. New product development is lower than expected