Key investment points:

Deeply involved in cable for 30 years, submarine cables helped grow twice. Qifan Cable was founded in Shanghai in 1994 and listed on the main board of the Shanghai Stock Exchange in 2020. In October 2020, the company established a base in Yichang, Hubei to enter the submarine cable business. With 30 years of experience in the wire and cable industry, it has become a “dark horse” in the submarine cable industry. The company achieved breakthroughs in 35kV and 220kV submarine cable performance in 2021 and 2023; built the Fujian Pingtan base at the end of 2023 to expand submarine cable production capacity and seize the location advantage of Fujian; and completed 500kV AC and ±535kV DC submarine cable product certification in the first half of 2024. From January to November 2024, the company added 1.4 billion yuan submarine cable orders, with a market share of 14.5%, and its ability to obtain orders continued to be fulfilled.

With the initial completion of the company's submarine cable production capacity construction, breakthroughs in product development, and a recovery in domestic maritime landscape, the submarine cable business is expected to help the company achieve second growth.

Sea breezes have returned to high prosperity, and the company is expected to complete the upgrading of submarine cable products within the window period. After the impact of sea use policy adjustments in 2022, Seabreeze approval accelerated in 2024, and a large number of previously backlogged projects were restarted. By the end of November 2024, the number of approved and untendered projects reached 22 GW, and the number of projects to be built has reached 16 GW. Sea Breeze Development is expected to return to high-speed rail. Under the guidance of the “Single 30” policy, the offshore distance of the Seabreeze Project has increased significantly, driving the upgrading of submarine cables to ultra-high voltage and DC products.

At the same time, various submarine cable manufacturers are seizing the location advantages of coastal provinces, barriers to submarine cable performance are also gradually increasing, and the upgrading of submarine cable products has entered the final window. The company is expected to use its location and cooperation advantages to achieve breakthroughs in ultra-high voltage and DC submarine cable performance during the window period, laying the foundation for the centralized launch of subsequent Shanghai deep-sea projects.

The location advantages of Shanghai and Fujian guarantee the company's medium- to long-term development space for submarine cables. In July 2024, the 29.3GW deep-sea site in Shanghai was approved; in November 2024, Fujian launched a 2.4 GW project competition, and construction of the 18.9 GW planned site continued to advance; the two places had sufficient reserves and intensive catalysis. The company is the only submarine cable manufacturer with a presence in the two places. According to our estimates, if the company can obtain 25% market share in the two regions, it is expected to achieve medium- to long-term annualized revenue of 1.44 billion yuan and net profit of 0.35 billion yuan for submarine cables. Combined with the company's 8% market share in other regions, the company's medium- to long-term annualized revenue scale of submarine cables is 2.5-3 billion yuan, which corresponds to a net profit of 0.5 billion yuan or more.

The company is at a critical point in the transformation of the profit structure. We expect that in 2024-2026, the company's submarine cable business is expected to achieve revenue of 0.5, 1.5, and 2 billion yuan, and achieve rapid volume; net profit of 0.05, 0.18, and 0.3 billion yuan, an increase of 81%, 260%, and 67% over the previous year. As the submarine cable business expands, the company's profit structure will shift from “mainly land cable” to “half of land and sea”. In 2024-2026, submarine cable's net profit will account for 12.4%, 30.6%, and 40.6% respectively, driving the company's profitability restoration and valuation model adjustment.

The profit forecast and investment rating are based on the recovery in domestic maritime climate and the volume of the company's submarine cable orders. We expect the company's revenue and net profit to mother to continue to grow in 2025 and beyond.

Revenue for 2024-2026 was 22.5, 23.9, and 25.1 billion yuan, up -3.6%, 6.4%, and 4.8% year-on-year; net profit to mother was 0.404, 0.588, and 0.726 billion yuan, respectively, up -4.7%, 45.7%, and 23.4% year-on-year. Considering that the Shanghai and Fujian Haifeng projects have sufficient reserves and are expected to be launched centrally during the “15th Five-Year Plan” period, the company is expected to use its location advantage to achieve a further increase in submarine cable orders, giving the company 10 times PE for the land cable business and 30 times PE for the submarine cable business in 2025, with a target market value of 9.5 billion yuan. It is covered for the first time, giving it a “buy” rating.

Risk warning 1) Fluctuations in the price of copper, the main raw material; 2) Domestic seabreeze construction falls short of expectations; 3) The company's acquisition of submarine cable orders falls short of expectations; 4) The company's ultra-high voltage and DC submarine cable performance breaks short of expectations; 5) The company's land cable profit recovery falls short of expectations.