Incident: In 2023, the company achieved operating income of 15.29 billion yuan, an increase of 15.8%; achieved net profit of 520 million yuan, an increase of 41.1% year on year; net profit after deducting non-return to mother was 490 million yuan, an increase of 46.5% year on year.
In the fourth quarter of 2023, the company achieved revenue of 4.31 billion yuan, an increase of 19.7% year on year; realized net profit of 160 million yuan, an increase of 54.1% year on year; net profit without return to mother was 150 million yuan, an increase of 70.3% year on year.
Expense rate control is good, and net interest rates continue to rise. Profit side: In 2023, the company's gross sales margin/net margin was 11.3%/3.9%, respectively, -0.3/+0.7pp; single Q4 gross margin/net margin was 11.2%/4.2%, respectively, up 0.2/0.8pp from month to month. Expense side: The company's 2023 sales/management (excluding R&D) /finance expenses were 2.1%/1.6%/0.2%, respectively, -0.1 pp/+0.02 pp/-0.1 pp, respectively. The overall cost ratio was relatively stable.
Transformer flat wire technology and certification barriers are high, and the company is expected to continue to benefit from overseas dividends. Most domestic electromagnetic wire companies have a development route from round wire to flat wire, and they are mostly used in the tram industry. High-voltage transformers are in high demand for flat wires. All of the company's electromagnetic wires are flat wires, 75% of which are used in the transformer industry, with sufficient production capacity. In 2023, the company's flat wire revenue was 5 billion yuan, up 27% year on year, net profit increased 27.5% year on year, and sales volume exceeded 70,000 tons, up 23.3% year on year. Among them, orders for UHV flat wire saturated increased more than 2 times year on year.
In addition, the company's total revenue from direct export of flat electromagnetic wires in 2023 was 400 million yuan, with a gross export margin of 16.6%, 5.5 pp higher than domestic sales (11.1%). We believe that domestic flat wire technology is superior to foreign investment; previously, due to production capacity and shipping cycles, the share of overseas transformers was lower. Currently, domestic peers are slow to go overseas, and subsequent companies are expected to increase their share by strengthening overseas localized production capacity.
The concentration of the cable industry is expected to increase, and the company's business is progressing steadily. There are many participants in the domestic cable industry. The number of companies above scale (annual output value of 20 million yuan or more) is more than 4,000, and the industry concentration is far lower than that of the United States, Japan, etc. The company currently has five major brands and seven production bases. In 2023, wire and cable achieved revenue of 10.1 billion yuan, a year-on-year increase of 13%, net profit increased 41.6% year-on-year, and sales kilometers were 2.79 million kilometers, an increase of 12.7% over the previous year. The company continues to strengthen the development of major customers and was shortlisted for the “Big Five and Six Small” power generation groups. It reduces costs and increases efficiency through internal optimization and improvement, and has a stable leading advantage.
Pay attention to shareholder returns and high dividends highlight the value of investment. As of the end of 2023, the company's 2023 dividend rate was 4.95%, which is a high level among peers. A cash dividend of 4 yuan (tax included) was distributed for every 10 shares, and the cash dividend for 23 years was 290 million yuan, an increase of 13.23% over the previous year, with a cumulative dividend of about 1.6 billion yuan for 14 consecutive years.
Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 17.34 billion yuan, 19.68 billion yuan, and 22.25 billion yuan respectively, and net profit to mother will grow 20.6%/13.6%/14.1% year-on-year in the next three years, respectively.
The company is a leading domestic flat electromagnetic wire. The transformer business is booming at home and abroad, and the company is expected to fully benefit.
The company was given 15 times PE in 2024, corresponding to a target price of 12.9 yuan, and raised to a “buy” rating.
Risk warning: the risk of production capacity expansion falling short of expectations; the risk that raw material prices will continue to rise; the risk that exchange rate fluctuations will affect the company's overseas business; the risk that falling product prices in the tram and real estate industries will affect profitability.