24H1 profit was steady, and Q2 performance improved significantly from month to month

24H1's operating income and net profit to mother both increased, and the land cable system contributed the main increase.

On the revenue side, 24H1 achieved revenue of 4.068 billion yuan, an increase of 10.31% year-on-year. The increase in 24H1 revenue is mainly due to the main increase in the contribution of land cable systems achieved in this period. On the profit side, 24H1 achieved net profit of 0.644 billion yuan, +4.47% year-on-year, and realized net profit without deduction of 0.548 billion yuan, or -9.50% year-on-year.

24Q2 performance improved year-on-month. 24Q2 achieved operating income of 2.758 billion yuan, +22.55% year over month, +110.43% month on month; realized net profit of 0.381 billion yuan, +5.54% year on year, +44.57% month on month; realized net profit without return to mother 0.355 billion yuan, -0.70% year on year and +83.76% month on month.

Submarine cable leader continues to win orders from Europe

In the context of tight supply of production capacity in Europe, it is expected that European Sea Breeze+ electricity interconnection orders will continue to spill over. The company already has experience in winning bids for European submarine cable+power interconnection projects, including InchCape offshore wind power projects, Hollandse Kust West Beta (HKWB) offshore wind power projects, etc. Recently, it has continued to receive new orders from Europe. In the context of European main cable delivery & installation, the company's products are expected to be fully recognized by overseas customers. In the future, it is expected that it will continue its ability to take orders for overseas submarine cables and increase the company's performance.

Ongoing orders are expected to be optimized, and submarine cable production capacity will further increase by the end of the year

Positive changes in wind power tendering and construction have laid the foundation for submarine cable delivery. We expect that in the future, as domestic seabreeze project tenders begin and overseas markets continue to break through, ongoing orders and deliveries will move towards a positive cycle.

In terms of production capacity, the company aims for a “3+1" industrial system and continues to promote capacity improvement and optimization. According to the 2023 annual report, the company plans to further optimize the industrial layout of the eastern base; build an industrial base in the south to a high standard to promote the construction of a new deep-sea power system innovation center, radiate the Southeast Asian market; plan the northern industrial layout to radiate the Northeast Asian market; and steadily promote overseas investment and industrial layout to enhance the core competitiveness of the international market.

Focus on sea-land cable manufacturing, offshore business enhances solution supply capabilities

The company's main business includes the three major product fields of land cable systems, submarine cable systems, and marine engineering. Land cable products are widely used, submarine cable technology is leading, and offshore engineering enhances the supply capabilities of solutions. We expect that as the company continues to receive spillover orders from Europe & domestic offshore cable orders, orders in the Shouhai Cable and Offshore sector are expected to continue to rise, and the high-margin marine sector is expected to further increase the company's profit level. At the same time, the continuous development of the land cable system as the basic business will help further consolidate the company's comprehensive business development.

Investment advice

We believe that the company is also benefiting from tight supply and demand in the overseas submarine cable market+rising expectations for seabreeze installations, promotion of domestic seabreeze projects and rising expectations for future seabreeze installations. With years of submarine cable supply experience and continuous breakthroughs in the European seabreeze market, it is expected that it will continue to maintain its leading position advantage. We expect that in 2024-2026, the company will achieve operating income of 8.852, 11.285, and 13.267 billion yuan, respectively, with year-on-year growth rates of 21.1%, 27.5%, and 17.6% respectively; net profit attributable to shareholders of listed companies will be 1.218/1.889/2.212 billion yuan, with year-on-year growth rates of 21.8%, 55.0%, and 17.1% respectively; EPS will be 1.77, 2.75, and 3.22 yuan respectively. The corresponding PE is 27X, 18X, 15X (based on closing price of 48.17 yuan on August 30, 2024). In summary, consider the development prospects of subsequent companies, cover for the first time, and give the child an “additional” rating.

Risk warning

Seabreeze progress falls short of expectations, risk of changes in industry demand, risk of overseas trade policy risk, risk of increased industry competition, risk of changes in raw material prices, risk of exchange rate changes, etc.