Key points of investment
Wind power spindle revenue is under pressure, and precision shaft products are growing against the trend
With 2024H1, the company achieved operating income of 0.713 billion yuan, a year-on-year decrease of 10.63%; net profit to mother of 0.074 billion yuan, a year-on-year decrease of 63.11%; net profit of non-return to mother 0.065 billion yuan, a year-on-year decrease of 66.11%; and gross sales margin of 20.97%, a year-on-year decrease of 14.52 pcts. Among them, revenue from wind power spindle products was 0.449 billion yuan, down 32.42% year on year; revenue from other precision shaft products was 0.163 billion yuan, up 40.12% year on year. With 2024Q2, the company achieved operating income of 0.458 billion yuan, a year-on-year increase of 26.84%; net profit to mother of 0.045 billion yuan, a year-on-year decrease of 55.45%; gross sales margin of 19.33%, a year-on-year decrease of 17.41 pcts, a year-on-year decrease of 4.58 pcts.
Foundry business: Achieving the development of large megawatt wind power castings. Jinlei Heavy Equipment, a wholly-owned subsidiary of the foundry spindle, has successfully won the bid for the four major components of Shanghai Electric's wind power V7, Siemens Gamesa SG14, Dongfang Electric's 18MW shaft system and 20MW main frame, and Dongfang Electric's 18MW shaft system and 20MW orders have completed the delivery of some products. This is the first time in the industry that large megawatt wind power castings have been developed. The company has established good strategic partnerships with high-end global wind power manufacturers such as GE, Siemens Gamesa, Yunda Co., Ltd., Vision Energy, Endean Xinneng, Vestas, Dongfang Electric, Goldwind Technology, and CRRC, providing a strong guarantee for “integrated casting and forging” production. In the second quarter of this year, the revenue contribution of the company's foundry spindle products has increased by more than 400% compared to the first quarter.
Forging business: Continuing to maintain the leading position in forgings, precision shaft revenue increased by about 40% in the wind power forging business, laying out large-scale wind power forging production capacity, and maintaining a leading position in the competitive market. The company's forged spindle products cover a full range of 1.5MW to 9.5MW models, achieving full power coverage of forging models. In the second quarter of this year, the company broke through the industry, and its revenue in the forging spindle field doubled.
Other casting and forging business: The company's industrial casting and forging business bucked the trend and developed more than 30 new domestic and foreign customers.
Other precision shaft products achieved sales revenue of 0.163 billion yuan, an increase of 40.12% over the previous year.
Advanced large-scale casting manufacturing capacity promoted the “casting+forging” dual-drive development situation. During the reporting period, the company had a full-process casting production line, high starting point equipment and facilities, built an ultra-high plant and deep box casting pit, equipped with advanced equipment such as large-scale sand mixers and vehicles. Relying on the industrial cluster advantages and convenient port transportation advantages of Dongying Offshore Wind Power Industrial Park, the production and sale of large-scale wind turbine parts, especially castings with high requirements for offshore wind power, opened up a new situation of the company's “casting+forging” dual-drive development.
Profit forecasting and valuation
The profit forecast was lowered and the “buy” rating was maintained. The company is a global leader in wind power spindles, and foundry production capacity is expanding at an accelerated pace. Considering the pressure on profitability due to intense competition in the industry, we lowered our profit forecast for 2024-2026. We expect the company's net profit to be 0.404, 0.6, and 0.808 billion yuan respectively (net profit to mother for 2024-2026 was 0.62, 0.869, and 1.097 billion yuan before the reduction), corresponding EPS was 1.24, 1.85, and 2.48 yuan/share, respectively, and the corresponding PE was 13, 9, and 6 times, respectively.
Risk warning: wind power installed demand falls short of expectations; raw material prices fluctuate; risk of product price fluctuations.