1H24 results are in line with market expectations

The company announced 1H24 results: operating income of 1.356 billion yuan, or -34.2% year-on-year; net profit after deducting non-return to mother 0.161 billion yuan, or -35.62% year-on-year. 1H24 results are in line with market expectations. 2Q24 company: operating income of 0.893 billion yuan, -26.0% year on year, +92.9% month on month; net profit after deducting non-return to mother 0.116 billion yuan, -34.7% year on year, +158.7% month on month.

1H24 weak domestic sales and shipments dragged down profit performance. Export sales continued to achieve high profits, and the performance of wind farm power generation in Liaoning was excellent. 1H24's wind power products achieved revenue of 1.22 billion yuan, or -38.65%, mainly affected by the slow pace of domestic wind power installations in the first half of this year and the company's strategic contraction of onshore business. Shipments of the company's domestic products declined year-on-year, while the overall delivery pace of overseas marine, sea tower and turret products was normal. 1H24's overseas revenue share increased 11.7ppt to 55.9% year on year. In terms of profitability, the domestic sales business was hampered by low capacity utilization. We estimate that we recorded a gross profit margin of 14.6% in the first half of the year, -2.6 ppt year over year. The export business 1H24 recorded a gross profit margin of 27.59%, which was basically the same as the previous year. It was mainly contributed by the delivery of single offshore piles and sea towers, and overseas offshore exports continued to achieve high profit performance. In addition, the 250MW wind farm in Fuxin, Liaoning, which the company has already put into operation, achieved a power generation revenue of 0.12 billion yuan, +164.3% over the same period. The highly profitable power generation business further increased the company's 1H24 profit.

Development trends

Ongoing offshore orders are steadily advancing production and delivery, and we look forward to receiving more European sea breezes spill orders in the future. The company's existing projects, such as the NOY project in France and the Thor project in Denmark, have now entered the single-pile production and delivery stage to varying degrees. The company's Panjin base in Liaoning and Caofeidian base in Tangshan are also continuing to be built, and the overall operating pace of the company's overseas business is progressing steadily. At the same time, we have observed that European offshore wind power project auctions have continued to increase in recent years, and that orders from basic European fan manufacturers have continued to be full. We expect the company to later land more offshore export orders with excellent production capacity and delivery performance. In addition, the company's power generation business has now put into operation a 250MW wind farm, and a 250MW Yuguang complementary photovoltaic project in Caofeidian, Tangshan is under construction. We expect to further increase power generation revenue in the future.

Profit forecasting and valuation

Considering the continued strategic contraction of the company's domestic turret business, we lowered our 2024/2025 net profit forecast by 21.9%/11.2% to 0.504 billion yuan/0.829 billion yuan, respectively. The company's current stock price corresponds to 2024/2025 25.8/15.7 times the price-earnings ratio. We continue to be optimistic that the company will continue to strengthen its competitiveness in the overseas business as a leader in overseas offshore industry companies and the demand for overseas sea breezes is high. We maintain our outperforming industry rating and maintain a target price of 26.3 yuan, which corresponds to a price-earnings ratio of 33.3/20.2 times in 2024/2025, and has 29.0% upside compared to the current stock price.

risks

Overseas ocean wind construction falls short of expectations; domestic wind power industry demand falls short of expectations; customer development falls short of expectations.