Description of the event

The company released its 2024 semi-annual report. The first half of 2024 achieved revenue of about 4.07 billion yuan, a year-on-year increase of 10%, and achieved net profit of 0.64 billion yuan to mother, an increase of 4% over the previous year; of these, 2024Q2 achieved operating income of 2.76 billion yuan, an increase of 23% over the previous year, and a net profit of 0.38 billion yuan to mother, an increase of 6% over the previous year.

Incident comments

On a half-year basis, 2024H1's revenue increased year-on-year, with gross margin of about 22.4%, a year-on-year decrease of about 6.2pct, and a year-on-year expense ratio of about 7.0%, which was basically the same. Among them, the company's sales expense ratio increased by 0.28 pct year on year. It is expected that the company will strengthen major market development and drive an increase in sales expenses. The R&D expense ratio and management expense ratio have remained basically the same year on year, and the financial expense ratio decreased by about 0.30 pct year on year. It is expected to be mainly due to an increase in interest income. In the end, the company achieved a net sales margin of about 15.8%, a year-on-year decline. Looking at the 2024H1 split business, 1) Submarine Cable Systems: 204H1 achieved revenue of about 1.485 billion yuan, a year-on-year decrease of 10%, a year-on-year decrease of about 39%, a year-on-year decrease of 12 pcts; 2) Offshore Engineering: 2024H1 achieved revenue of about 0.284 billion yuan, a year-on-year increase of 38%, a gross profit margin of about 34%, an increase of 11 pcts; 3) Land cable systems: 204H1 achieved revenue of about 2.294 billion yuan, a year-on-year increase of 26% and a gross margin of about 10% year-on-year. Increase 1 pct.

On a quarterly basis, 2024Q2's revenue increased by more than 20% year on year, achieving a gross profit margin of 22.5%, a year-on-year decrease of about 5 pct; the period expense ratio was about 6.1%, down 0.28 pct year on year. Among them, the sales expense ratio increased 0.17 pct year on year, and the management cost rate, R&D expense ratio, and financial expense ratio all declined to varying degrees year on year. At the same time, the company's asset depreciation rushed back about 0.017 billion yuan and obtained other income of 0.036 billion yuan; in the end, Q2 achieved a net interest rate of 13.8%, a year-on-year decline.

Other financial indicators show that the company's operating quality is healthy and stable. The net operating cash inflow of 2024Q2 is about 0.48 billion yuan, which is an increase over the same period last year. The capital expenditure is about 0.12 billion yuan, indicating that the company is actively promoting production capacity construction.

As of August 12, 2024, the company had orders of 8.905 billion yuan, including 2,949 billion yuan for submarine cables (submarine cables and umbilical cord cables of 220KV and above account for about 22%, and international orders account for about 29%), accounting for an outstanding share of overseas orders.

Looking ahead, domestic seabreeze installations are expected to increase rapidly, and overseas sea breezes are expected to see explosive growth in 2025-2026. The company is actively promoting the construction of submarine cable production capacity and continuously developing overseas submarine cable orders, which is expected to achieve growth in shipment volume and performance. The company is expected to achieve a net profit of about 1.35 billion yuan in 2024, corresponding to about 24 times PE. Maintain a “buy” rating.

Risk warning

1. Offshore wind power installations fall short of expectations;

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