Key points of investment

Incident: The company released its three-quarter report for 2024, and achieved revenue of 6.699 billion yuan in the first three quarters of 24, +25.22% year over year, and net profit of 0.932 billion yuan to mother, +13.41% year over year. Among them, Q3 achieved revenue of 2.631 billion, +58.34% YoY, -4.61% month-on-month, and net profit to mother 0.288 billion, +40.28% YoY, and -24.36%.

The land and sea business is progressing hand in hand, and we are looking forward to the release of sea cables. The company achieved revenue of 2.631 billion in 24Q3, +58.34% year-on-year, and net profit of 0.288 billion yuan, or +40.28% year-on-year. The increase in revenue was mainly due to the company's acceleration of land and sea progress during the reporting period. The 24Q3 land cable system achieved operating income of 1.394 billion yuan, an increase of 53.12% over the previous year; the submarine cable system and marine engineering achieved revenue of 1.232 billion yuan, an increase of 64.50% year on year. The significant increase in net profit to the mother was mainly due to the increase in operating income of high-value-added submarine cable products during the reporting period. The 24H1 domestic seabreeze commencement and tendering are slightly lower than expected, affecting the pace of implementation of the company's domestic submarine cable orders. Recent favorable policies and continuous competition approval for seabreeze projects. Accelerated tenders for key domestic offshore wind power projects such as Guangdong Fanshiyi and Shandong Peninsula North L are expected to be gradually resolved. Domestic seabreeze stock projects are expected to enter the construction phase one after another in 24Q4 and 25. The company's submarine cable business can be expected to grow.

Ongoing orders are growing steadily, and we are actively planning the industrial layout in the North. On October 18, the company won the bid for the first 500kV submarine cable and installation project for the Fanshiyi Sea Wind Project in Yangjiang, Guangdong, with a bid amount of 0.909 billion yuan. As of October 18, 2024, the company's on-hand orders were about 9.236 billion yuan (+3.7% month-on-month), including 2.949 billion yuan for submarine cable systems (unchanged from August), 4.89 billion yuan (+8.1% month-on-month) for land cable systems, and 1.397 billion yuan (-2.5% month-on-month) for marine engineering, which can effectively support performance. In June 2024, the company signed an “Investment Cooperation Agreement” with the Laizhou Municipal People's Government to invest 1.5 billion yuan in the construction of a high-end submarine cable system northern industrial base project in Laizhou City, Yantai, Shandong Province. In August 2024, the company plans to invest 0.2 billion yuan of its own capital to establish a wholly-owned subsidiary in Laizhou, Yantai, Shandong Province, to further improve the company's submarine cable production capacity layout and enhance its advantages in taking orders. The company's share in northern markets such as Shandong is expected to increase significantly in the future.

Contract liabilities have increased markedly, and the ability to control expenses is excellent. The company's expense ratio for the 24Q3 period was 6.91%, -0.44pct. Among them, sales/management/R&D/finance expenses rates were 2.08%/1.37%/3.54%/-0.08%, respectively, +0.19/-0.24/-0.03/-0.36pct, and the cost control capability was excellent. In terms of cash flow, the company's net operating cash flow for the first three quarters was 0.285 billion yuan, +301.35% year-on-year. As of 24Q3, the company's contract debt was 0.859 billion yuan, up 194% month-on-month and 162% year-on-year, and future performance is expected to be released at an accelerated pace.

Investment advice: The global development of offshore wind power has shown a booming trend. The company has a remarkable advantage in the field of submarine cables, and is optimistic about the company's development prospects. The estimated net profit for 2024-2026 is $13.09, 19.07, and $2,443 billion, respectively, corresponding to EPS of 1.90, 2.77, and 3.55 yuan/share, corresponding to PE 29, 20, and 16 times, maintaining a “buy-B” rating.

Risk warning: 1. Prices of raw materials have risen sharply; 2. Installed wind power is lower than expected; 3. New product development is lower than expected