Event: The company released its 2023 semi-annual report. In the first half of 2023, the company achieved operating income of 3.459 billion yuan, up 25.93% year on year; net profit attributable to shareholders of listed companies was 450 million yuan, up 150.60% year on year; net profit attributable to listed companies after deducting non-recurring profit and loss of 400 million yuan, up 128.72% year on year; and basic earnings per share of 0.50 yuan.
Net profit increased month-on-month in the second quarter, setting a record high in a single quarter. In 2023Q2, the company achieved net profit of 252 million yuan, up 78.81% year on year, 26.73% month on month, achieved net profit of 236 million yuan, year-on-year increase of 66.21%, and 43.77% month on month, setting a record high in single-quarter profit; production capacity for new projects was released during the reporting period, exchange profit and loss increased and manufacturing costs declined, and the company's product profitability increased significantly. The company's quarterly gross sales margins for 202Q3-2023Q2 were 15.06%, 19.79%, 18.93%, and 17.29%, respectively. Quarterly net sales margins were 9.79%, 7.10%, 11.05%, and 15.69% respectively. The 2023Q2 net sales margin improved significantly from month to month.
There is plenty of room to increase production, and gross margin by product has increased dramatically. In 2022, the company's PQF production line received 300,000 tons of finished products. According to the 100% estimated capacity utilization rate, the current production line still has room for 34.7% increase; the company's subsidiary Changzhou Changbao Jingte Steel Pipe Co., Ltd. plans to invest in the construction of a 50,000 ton precision tube project for new energy vehicles, and subsequent product categories are expected to be further enriched; in the first half of 2023, the gross margin of oil casings increased significantly, with a year-on-year increase of 4.56 pct. The gross margin of boiler tubes was 17.48%, up 1.03% year on year, and the gross margin of other pipes was 9.40%, up 7.89 pct year on year; domestic sales revenue in the first half of 2023 accounted for 57.48%, gross margin was 13.47%, up 7.71 pct year on year, export revenue accounted for 42.52%, gross margin was 24.48%, up 5.61 pct year on year.
Downstream sentiment is improving, and demand is expected to continue expanding. In mid-2022, the capital expenditure of petroleum, Sinopec and CNOOC exploration and development increased by 21.3%, while the number of global oil well drilling rigs continued to increase, benefiting the company's demand for oil well pipes and supporting products. In 2022, the National Development and Reform Commission proposed that 165 million kilowatts of new thermal power plants will be built in 2022-2023, domestic power plant boiler tube demand will increase, the international market is affected by the energy supply pattern, and the European market is also expected to restart coal power demand.
Investment advice. The company focuses on the manufacture of small to medium caliber special pipes. Production growth goes hand in hand with structural improvements. Downstream demand continues to improve, exchange factors, and cost reductions effectively support its profit release. We expect the company to achieve net profit of 780 million yuan, 800 million yuan, and 92 million yuan respectively from 2023 to 2025. The corresponding PE is 7.7, 6.8, and 6.6 times higher, and maintain the “buy” rating.
Risk warning: Prices of upstream raw materials have risen sharply, downstream demand falls short of expectations, and there is uncertainty about increasing production in new production lines.