The company is a world-renowned supplier specializing in R&D, production and sales of special parts for oil and gas equipment. The products are widely used in oil and gas equipment fields such as onshore wellheads, deep-sea drilling, and shale gas fracturing in major oil and gas extraction zones around the world. The company achieved revenue of 0.795 billion yuan in the first three quarters of 24, -15.11%; net profit to mother was 63.8149 million yuan, or -48.61%. The company's downstream customers are involved in many projects. As the oil and gas industry improves, it is expected to switch to company orders in the future. Maintain a “buy” rating.

The order structure has changed, and gross margin is under pressure

Due to a slight decline in orders for special parts for high-value-added deep-sea equipment, gross margin was under pressure: the company's gross profit margin was 18.99% in the first three quarters of 2024, -4.30pp; of these, in the Q3 quarter, the company's gross profit margin was 16.44%, -7.34pp, and -4.15pp month-on-month. In terms of the cost ratio for the period, the sales expense ratio for the first three quarters was 1.80%, +0.30pp; the management expense ratio was 4.31%, +0.50pp; the financial expense ratio was 0.03%, +0.63pp, mainly due to a decrease in exchange earnings in the current period; and the R&D expense ratio was 3.47%, -0.11pp year on year. The cost rate for the period reached 9.60%, +1.32pp compared to the previous year.

Well-known deep-sea oil and gas equipment manufacturers, high-quality customer resources

The company is a world-renowned high-tech enterprise specializing in R&D, production and sales of pressure-bearing parts for deep-sea and fracturing oil and gas drilling equipment. Furthermore, with years of R&D investment and performance such as impact toughness at low temperature and uniformity of products with large wall thickness that surpass industry standards, it has become the most important supplier for large oil and gas technology service companies such as TechnipFMC, SLB, and AkerSolutions in the Asia-Pacific region. The company continues to increase investment in product research and development, transforming and upgrading to high-end markets such as deep sea and fracturing, and the share of orders in the deep sea sector is increasing year by year.

The fund-raising project progressed smoothly, and cross-border acquisitions unleashed development potential

The company keeps up with market changes. As demand for high-end gate valves in the oil and gas sector continues to rise, the company raised a 350MN multi-directional die forging hydraulic press project, which can be used to mold and manufacture key components of equipment under special operating conditions such as deep sea and fracturing. According to the company's WeChat account, the company acquired HME Technologies, a Singaporean oil and gas industry equipment OEM manufacturer, on October 21, which will achieve key steps to increase production capacity and support the company's long-term sustainable development.

Profit forecasting and valuation

The company acquired a new Singaporean HME company, which is expected to continue to benefit as the global deep-sea equipment industry chain shifts to the Asia-Pacific region, and the multi-directional die forging project has already entered the commissioning stage. After production is put into operation, it will reduce costs and improve its ability to accept orders. We expect the company's net profit to be 0.104/0.175/0.249 billion yuan for 24-26, and the corresponding PE is 31/18/13x. Comparable companies have consistently expected average PE values of 22 times in 25 years. Considering high product barriers and growth, the 24-26 net profit compound growth rate is higher than the average of comparable companies. They enjoy a certain valuation premium. They are given 23 times PE valuation over 25 years, and the corresponding target price is 20.70 yuan.

Risk warning: risk of oil and gas industry prosperity; risk of major geopolitical changes; risk of increased market competition; risk of exchange rate changes.