1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 1.788 billion yuan, -25.4% year on year; net profit to mother 0.422 billion yuan, +44.7% year on year; net profit without return to mother 0.153 billion yuan, or -40.7% year on year. 1H24 results are in line with market expectations. 2Q24 Company: Revenue 1.09 billion yuan, -17.7% YoY, +56.3% month-on-month; net profit to mother 0.335 billion yuan, +109.4% YoY, +285.6% month-on-month; net profit without return to mother 0.082 billion yuan, -43.3% YoY, +16.6% month-on-month. The 2Q24 company recorded an unrecurrent profit and loss of 0.253 billion yuan. Mainly, the company disposed of 80% of the 300MW Jiuquan wind farm shares to confirm the investment income contribution of 0.273 billion yuan.

1H24 was affected by the pace of installation in the industry, and shipments were sluggish, and casting profits improved steadily. We estimate that the company shipped about 0.17-0.18 million tons in 1H24, a year-on-year decrease of about 20%, mainly affected by the poor installation pace of the 1H24 industry. Among them, in 2Q24, we estimate that the company shipped about 0.11-0.12 million tons, and the delivery pace has clearly recovered from month to month. The 2Q24 company achieved a comprehensive gross profit margin of 17.5%, and its overall profitability has continued to improve compared with the 3Q23 industry since the price reduction.

Development trends

The expansion of finishing production continues to advance, and the company continues to lead in production capacity. As of 1H24, the company has formed 0.7 million tons of casting and 320,000 tons of finishing production capacity, and the finishing capacity is still expanding. The company's northwest base continues to rise in production capacity, and the construction of the 0.22 million ton finishing project in Ningbo is progressing steadily. Among them, the company expects to complete construction of 0.1 million tons of gearbox processing capacity this year. When the project is fully built and put into operation, the company will have 0.54 million tons of finishing capacity. We expect that the supporting commissioning of the company's finishing capacity will help further increase the unit profit of casting products.

It is expected that a full delivery pace will be maintained in the second half of the year, and the layout of the wind farm development sector will continue to advance. We expect the industry to enter a state of project construction intensively starting in 3Q24. The company is expected to continue to have a full delivery pace in the second half of the year, capacity utilization will further increase, and the company will continue to cope with the profit pressure of the industry by optimizing the product structure and reducing internal costs and increasing efficiency. Furthermore, in July 2024, the company announced the establishment of a joint venture with Zhejiang Xinneng and Ningbo Mingling (wholly-owned subsidiary) to establish Subei Zhejiang Xinneng Wind Power Co., Ltd. We expect to further lay out wind farm development and operation business in the future.

Profit forecasting and valuation

We keep the company's profit forecast for 2024-2025 unchanged. The company's current stock price corresponds to a price-earnings ratio of 13.8/12.1 times 2024/2025. We maintain the company's outperforming industry rating. Considering the recent reduction in the valuation of the wind power industry sector, we lowered the company's target price by 11.1% to 12.27 yuan, which corresponds to 18.0/15.7 times the 2024/2025 price-earnings ratio. There is 30.2% upside compared to the current stock price.

risks

Prices of raw materials did not fall but rose; demand in the wind power industry fell short of expectations; progress in building new production capacity fell short of expectations.