1-3Q24 results are in line with our expectations

Lanshi Heavy Equipment announced results: 1-3Q24 revenue of 3.74 billion yuan (YoY +20.2%), net profit to mother of 0.096 billion yuan (YoY -29.5%); 3Q24's revenue/net profit to mother of 1.25/0.027 billion yuan. Due to the low base for the same period last year, the growth rate was steep; the overall first three quarters met our expectations.

We think the fulfillment rate for new orders placed in 2024 is high. The company signed a new order of 6.4 billion yuan in 2023, with a planned growth rate of more than 25% in 2024; as of the previous 10 months, the company had completed 80% of its annual plan and fully blossomed in various fields such as coal chemicals (mainly EPC projects), exports, and nuclear energy. 1) In 2024, the company's EPC orders doubled, and the comprehensive strength of coal chemical front-end design, core equipment manufacturing and industrial chain was outstanding. 2) 2024H1 Lanshi added 0.247 billion yuan in international business (+175% over the same period last year), which can be expected to reach 0.5 billion yuan throughout the year. 3) The company grasps the trend of nuclear industry development and is unique in HTL electric heaters and non-standard spent fuel equipment for high-temperature air-cooled reactors in fourth-generation nuclear power plants.

1-3Q24 gross margins are under pressure. The company's gross margin of 1-3Q24/3Q24 was -2.2/+1.9ppt year-on-year, mainly brought about by changes in product structure & market competition. The company's sales/management/financial expense ratios for the first three quarters of 2024 were -0.1/-0.1/-0.3ppt, respectively, and the company's net profit margin decreased by 1.8ppt to 2.6%.

The production capacity of blue stone superalloys is highly elastic. With the 10,000-ton press put into operation, we believe that the output value of the company's new metal materials is expected to rise to 1 billion yuan, effectively expanding in fields such as nuclear hydrogen optical storage.

Development trends

Actively revitalize assets and stimulate the vitality of state-owned enterprises. The company issued two relevant announcements. 1) Lanzhou Lanshi Environmental Protection, a wholly-owned subsidiary, plans to introduce a strategic investor through public listing. After the capital increase is completed, Lanshi Heavy Equipment's shareholding ratio will be reduced to 51.02%. 2) Participated in funding the establishment of Lanzhou Lanshi Molten Salt Energy Storage Technology Co., Ltd. (51% shareholding). In addition, in October, the company hosted the Gansu Hydrogen Energy Industry Chain High Quality Development Conference and signed 25 projects, with a contract amount of 1.94 billion yuan.

Profit forecasting and valuation

We keep our 2024/2025 net profit unchanged, and the company's current stock price corresponds to 2024/2025 44x/33x P/E. Considering the active recovery of the nuclear power sector's valuation in October, we raised the company's target price by 22% to 6.1 yuan, corresponding to 36x P/E in 2025, with 8.0% room to rise, and maintain the industry rating.

risks

Domestic price competition intensifies; risk of gross margin fluctuations.