Performance summary: The company achieved revenue of 3.37 billion yuan (+23.0%) in 2022, net profit of 100 million yuan (-41.6%), corresponding to EPS of 0.48 yuan, deducting non-net profit of 95 million yuan (-35.9%); 2023Q1, the company achieved revenue of 860 million yuan +30.2% year-on-year, -10.2% month-on-month), and Guimo's net profit of 73 million yuan (+248% year-on-month, +219% from the previous year), corresponding to EPS of 0.34 yuan, deducting non-net profit of 141 million yuan (+227% from the same period last year, +37.5% from the previous month) %);

Raw materials fluctuated at a high level, and wind power emissions were waiting to blossom: Affected by increased global inflation and supply chain fluctuations, etc., the prices of raw materials such as scrap, pig iron, alloys, etc. accounted for more than 60% of the company's material purchases in 2022. At the same time, the wind power industry, which accounts for about 50% of the company's revenue, added 37.6 GW of grid-connected installed capacity in 2022, a decrease of 21.0% over the previous year. Against the backdrop of weakened demand and increased competition, the industry's average bidding price declined. At the same time, the trend of large-scale wind power brought about iteration of models and changes in the competitive pattern of the industry. However, as wind power installation accelerates, raw material prices fall, and downstream operating rates increase, the profitability of the industry will gradually improve. The company focused on wind power materials with high technical requirements, high production difficulties and low market capacity, forming a misplaced competition with the leading domestic special steel industry. It achieved rapid revenue growth in the first quarter of 2022 and 2023. At the same time, profitability improved at an accelerated pace in the first quarter of 2023 compared to the same period, showing the company's strong competitiveness under the rapid recovery of the industry;

Product volume increased and prices fell, and profitability bottomed out: In terms of operating revenue, wind power precision machinery components/mold steel/special alloys/cast steel contributed 7.0/2.8/2.0/610 million yuan respectively over the previous year, up 72.3%/97.1%/77.6%/101.4% respectively. The analysis was mainly due to a sharp increase in sales volume in the above sectors by 65.7%/94.49%/78.8%/107.0%, all due to the company's rising production capacity (the new intelligent manufacturing base entered the production capacity expansion stage, mold steel, special alloy steel, etc.) The production capacity of investment projects climbed Poh, increased production capacity at Dongqi's base), revenue from the wind power casting sector declined a lot (-24.7%), mainly due to weak demand and a decline in sales volume (-25.2%). In terms of profitability, the company's gross profit margin in 2022 was 15.9% (-2.8 pcts), of which the profitability of the wind power business declined significantly (-4.0 pcts). Among them, gear steel, wind power spindles, wind power castings, and wind power precision parts fell 1.3 pcts, 8.6 pcts, and 6.1 pcts.3.7 pcts respectively. In order to balance the decline in the profitability of the wind power business, the company actively expanded its machinery and equipment and traditional energy customers and achieved rapid revenue growth in the two businesses (+91.3% and +31.2%). Furthermore, the company achieved a significant increase in the profitability of special alloys, steel castings and other businesses (+6.8pcts, +4.5pcts) by optimizing the product structure and increasing the scale effect of production capacity investment. Since the first quarter of 2023, against the backdrop of accelerated downstream installation, rising customer operating rates, recovery in demand, and falling raw material costs, the company's gross margin reached 20.6%, a sharp recovery from month to month (+7.0pcts). It is close to the 2021Q3 level, and the company's profitability inflection point is obvious;

Financial data: In terms of the cost rate for the period, the company's R&D cost rate increased by 0.5 pcts in 2022, mainly due to customer cost reductions and model upgrade requirements driven an increase in R&D investment under the trend of large-scale wind power; compared with the end of the 2022 period, the decrease in monetary capital in the first quarter, projects under construction, and the increase in accounts receivable and accounts receivable, mainly due to an increase in downstream customer sales while the company invested in production capacity construction;

In the big year of wind power construction, the company has fully benefited: Considering that the wind power industry is still in a rush to install and transition in 2021-2022, affected by factors such as economic environment disturbances and high raw material prices, demand for wind power installation will start slowly in 2022. As the above disturbances subside, wind power installations accelerated in the second half of the 14th Five-Year Plan to achieve the planned targets. According to Polaris's forecast, the new installed capacity of wind power is expected to reach 75 GW in 2023, with Seabreeze installed capacity growing even faster. The company's wind power industry accounts for about 50% of its business, and has its own competitive advantage in the field of wind power material segmentation, so it will fully benefit in the context of large-scale sea breezes, speeding up wind power installations, and falling high levels of raw materials;

Accelerate production capacity and enter high-value-added wind power components: Currently, the company's projects under construction include the second phase of the casting and forging technical improvement project, offshore wind power casting finishing, high-end equipment core components, and high-end steel casting technical improvement projects. The production capacity increase plan for Dongqi's steel casting sector has basically been completed; the construction work of the wind power casting finishing project has been mostly completed; the construction work of the convertible bond project (high-end equipment precision parts project) has been accelerated. The first batch of about 50 sets of equipment for the project in the fourth quarter of 2022 has already been installed and commissioned, entering the trial production stage. It is expected that the processing and production capacity of 84,000 pieces of precision parts will be increased after the project reaches production, speeding up the localization and replacement of core components of wind power gearboxes. At the customer level, we actively explore the application of high-value-added wind power components, signed a strategic cooperation agreement with the existing customer Nangaochi, completed the trial production and verification of gearbox components, entered the small-batch supply stage, and conducted product expansion certification and business negotiations with ZF. It is expected that the company's performance will grow steadily as production capacity climbs, product structure optimization, and downstream demand increases;

Investment advice: As a leading enterprise in the wind power industry segment, the company's performance declined due to many adverse factors in 2022. The sharp increase in gross margin in the first quarter confirmed a recovery in downstream sentiment. It is expected that as wind power construction accelerates and the company's production capacity is launched at an accelerated pace, the company's performance will bottom out and enter the fast track. We expect the company to achieve revenue of 4.71 billion yuan, 6.57 billion yuan, and 8.61 billion yuan in 2023-2025, an increase of 39.9%, 39.4%, 31.1% over the previous year, and achieve net profit of 290 million yuan, 510 million yuan, and 750 million yuan, up 185%, 72.3%, and 48.5% year-on-year, corresponding to PE22X, 13X, and 8X, with initial coverage and a “buy” rating.

Risk warning: Risk of falling raw material prices falling short of expectations, production capacity falling short of expectations, and downstream wind power installations falling short of expectations