Incident: The company released its report for the third quarter of 2022, achieving revenue of 976 million yuan in the first three quarters, an increase of 29.9% over the previous year; achieving net profit of 68.2552 million yuan, an increase of 3.9% over the previous year; on a quarterly basis, 2022 Q3 achieved revenue of 387 million yuan, up 67.4%/17.9% year-on-year and year-on-month respectively; achieved net profit of 32.8759 million yuan, up 152.6%/22.4% year-on-month respectively. Reviews:

The downstream demand boom unleashes the elasticity of the company's performance. Benefiting from the booming development of the downstream oil, gas and wind power industries, the company's performance has grown rapidly. Affected by the global epidemic and the geopolitical situation in Russia and Ukraine in the first half of this year, global oil prices continued to rise, driving up capital spending by oil and gas development companies. At the same time, domestic demand for wind power installations was strong under the influence of policies, jointly boosting the company's product demand and driving the release of flexible performance. In the first three quarters of 2022, the company achieved operating income of 976 million yuan, an increase of 29.9% over the previous year; it achieved net profit of 68.2552 million yuan, an increase of 3.9% over the previous year, changing from negative to positive. Q3 2022 achieved revenue of 387 million yuan, an increase of 67.4%/17.9% over the previous year/month, respectively; the net profit returned to the mother was 32.8759 million yuan, an increase of 152.6%/22.4% over the previous year/month, respectively.

Falling costs have boosted the company's profitability. The company's gross margin level in Q3 2022 was 16.2%, an increase of 1.0 pct over the previous year, and rebounded for three consecutive quarters. Among them, the increase in gross profit was mainly due to falling raw material prices, cost improvements, and delivery structures. At the same time, due to the impact of the domestic epidemic in the first half of the year, the inspection and delivery of some oil and gas forgings with high gross profit was delayed until the third quarter.

In line with downstream demand trends, fund-raising and production expansion accelerated. In order to seize important opportunities for the rapid development of the downstream wind power market, the company has successively deployed production capacity for fan forgings through IPOs and fixed increases. The company currently has an average production capacity of about 85,000 tons, of which wind power/oil and gas forgings account for about 60%/30% respectively. On the production expansion path, 1) IPO project: It is proposed to achieve an increase of 22,000 tons of forging production capacity per year through high-quality forging expansion and technological transformation projects; it is proposed to achieve a production capacity of 5,000 tons/year for special parts for deep-sea oil and gas equipment, 6,000 tons/year for special parts for wind power equipment, and 4,000 tons/year for general parts through precision processing projects for key components of high-end equipment. 2) Fixed increase project: It is proposed to achieve an annual output of 55,000 tons of 18CrNiMO7-6 wind power gearbox forgings and 45,000 tons of 42CrMo4V wind turbine gearbox forgings with an annual output of 100,000 tons through an automated line project for wind power gearbox forgings with an annual output of 100,000 tons. This production expansion plan will help the company expand the scale of its fan forging business, meet downstream market demand, and further increase the company's market share in the field of fan components.

Profit forecasting and investment ratings: The decline in raw material prices drives cost side improvements, compounded by the boom in the downstream oil and gas and wind power industries, while the pace of the company's production expansion accelerated to increase market share. We expect the company's revenue for 2022-2024 to be 12.47, 15.41, and 1,851 million yuan respectively, up 17.7%, 23.6%, and 20.1% year-on-year; the net profit of Guimo was 0.99, 1.49, and 190 million yuan respectively, up 12.6%, 51.2%, 27.7% year-on-year; as of November 3, the market value corresponding to PE in 22-24 was 31.28x, 20.68x, 16.20x

Risk factors: Repeated epidemics have led to the risk of shrinking industry demand, falling short of expectations in capacity construction, rising raw material prices, and a sharp decline in crude oil prices.