Introduction to this report:
The company has been deeply involved in the valve industry for 20 years, with a broad business layout, scattered downstream, and strong cyclical resistance. In the context of domestic substitution, the traditional downstream boom is improving, and new businesses such as new energy and nuclear power are expanding rapidly, and the company's performance is expected to grow rapidly.
Key points of investment:
Investment advice: The company's performance is in line with expectations, with strong orders and sales. Considering the company's smooth downstream expansion, the order structure continues to improve and the exchange rate, I am optimistic that the company's 2024 performance will increase. The company's 2024-2026 EPS forecast was raised to 1.22/1.42/1.71 (originally 1.21/1.40/1.67 yuan). Based on comparable company valuations, the company was given 18 times PE in 2024, and the target price was raised to 21.96 yuan to increase its holdings.
The performance was in line with expectations, and the company achieved rapid growth. The company announced that in the first half of 2024, revenue was 2.838 billion yuan/ +17.14%, net profit due to mother 0.488 billion yuan/ +45.04%; net profit not attributable to mother was 0.483 billion yuan/ +37.41%. The second quarter achieved revenue of 1.478 billion yuan/YoY +11.07% /month-on-month +8.73%, net profit to mother 0.291 billion yuan/YoY +22.22% /month-on-month +48.04%; net profit after deducting non-mother 0.289 billion yuan/YoY +15.56%/-152.57% month-on-month.
The order structure was optimized, and the company's profit level continued to break through. The first half of 2024 achieved a gross profit margin of 35.48% /+5.78pct, and a net profit margin of 17.41% /+3.33pct. In the second quarter, the gross profit margin was 37.48% /yoy +6.91 pct/month-on-month +6.7 pct. The sales/management/R&D/finance expense ratios for the first half of 2024 were 7.34%/3.88%/2.73%/-0.5%, respectively. 24H1 maintained a high increase in on-hand orders, and advance payments were +40.60pct year-on-year. Against the backdrop of improvements in steel prices and exchange rates, the company's gross margin still has a lot of room to improve in the future. The company's gross margin has now been rising for 5 consecutive quarters. The announcement revealed breakthroughs in many fields in the first half of 2024:1) breakthroughs in the performance of double linkage switching valves, with a total of 106 sets of equipment delivered; 2) 28-inch underwater ball valves passed inspection; 3) undertook multiple international FPSO projects; 4) won bids for energy storage and gas storage wellhead projects in the Middle East and Europe.
Traditional downstream (chemicals, refining, oil extraction, etc.) is booming, and new businesses (LNG, offshore, nuclear power, etc.) are growing rapidly. 1) Traditional downstream helps the valve manufacturing industry grow. The share of renewable energy in global power generation reached a record high of 30% in 2023, and is expected to increase to 35% in 2025. Continued growth in global energy demand brings higher demand to the industrial valve industry. 2) LNG and hydrogen energy: The Russian-Ukrainian conflict has led to an increase in demand for energy such as LNG; the Middle East energy transition has accelerated hydrogen energy construction to release more demand for valves; 3) Offshore: Domestic orders for LNG carriers and FPSO ships are expected to accelerate, and orders are expected to be gradually released; 4) Nuclear power, etc.: In the future, it is expected that 6-8 nuclear power units are expected to be released every year, and the value of valves required for stand-alone units is about 0.5 billion; domestic ethylene project construction continues, and orders are expected to be released.
Risk warning: risk of cyclical fluctuations in the oil and gas industry, risk of exchange rate fluctuations.