In the first three quarters of 2023, the company achieved net profit of 93 million yuan, +698.25% over the same period last year, and performance rebounded further. As a leading enterprise in the wire and cable industry, the company's main business remains stable, and in response to the national strategy, it has achieved important breakthroughs in special markets such as nuclear power, aerospace, and superconductivity. The company is a second-tier representative enterprise in the submarine cable industry. Considering the obvious recovery in the prosperity of the Haifeng industry and the significant increase in installation certainty in 2024-25, we expect the company's future product structure and profitability to continue to be optimized. Considering that submarine cable delivery has fallen short of expectations since this year, we lowered the company's 2023/24/25 net profit forecast to 3.78/6.34/830 million yuan, corresponding to the EPS forecast of 0.28/0.46/0.61 yuan. Referring to the latest valuation level of comparable companies, the company was given 23 xPE in 2023, and the target price was raised to 6.4 yuan, maintaining the “buy” rating.

Net profit for the first three quarters of 2023 was +698.25% year-on-year, and performance rebounded further. In the first three quarters of 2023, the company achieved operating income of 33.641 billion yuan, +7.88% year-on-year; net profit of 93 million yuan, +698.25% year-on-year. Among them, the company achieved operating income of 11.399 billion yuan, +4.86% year-on-year in 2023Q3; realized net profit of 32 million yuan, -2.25% year-on-year; and realized net profit of 29 million yuan, +0.01% year-on-year. We expect that with the further recovery of the economic situation and the continuous optimization of the company's product structure, the company's revenue scale and profit level are expected to increase further in the future.

Due to the combined impact of submarine cable delivery falling short of expectations and implementation of cost saving and consumption reduction work, the company's profit level fluctuated slightly.

The company's gross margin for the 2023Q3 quarter was 5.18%, down 0.17pct year on year and 0.31 pct month on month; net profit margin was 0.32%, flat year on year, up 0.07 pct month on month. The first three quarters of 2023 were affected by multiple factors. The overall pace of Haifeng installation and construction fell short of expectations, and the pace of delivery of high-margin submarine cable products slowed down. At the same time, the company implemented cost saving and consumption reduction work, strictly controlled raw and auxiliary materials, logistics, plates, waste disposal, etc., and production costs were drastically reduced, and the overall profit level remained stable.

The prosperity of the Haifeng industry is picking up, and the company's profitability is expected to continue to be optimized. Recently, the construction and policy benefits of the Sea Breeze project have continued, and marginal catalysis has continued to strengthen. On September 25, the Jiangsu Longyuan Sheyang Sea Wind Project was approved and approved; on October 11, the Guangdong Province's 7GW Provincial Management Sea Wind Project was contested; on October 18, the National Energy Administration issued a notice on promoting the reduction of project costs, economic improvement, and the achievement of unsubsidized and affordable Internet access for offshore wind power projects in deep sea areas. Combined with the 14th Five-Year Sea Wind Plan, there are still 30+ GW not connected to the grid. Considering the one-year wind power construction period, the certainty of installation in 2024-25 has improved markedly. We expect the company's submarine cable business to usher in rapid volume growth in the next year during the industry delivery boom cycle, bringing continuous optimization of the company's product structure and profitability.

Respond to the national strategy and continue to attack special markets such as superconductivity. Under the guidance of the national strategy, the company set up a new energy project department to strengthen the development of key projects and related equipment manufacturers. According to the company's announcement, the company successfully received an order from Guodian No. 1 Unit 1/2 in the field of nuclear power, and became the only cable company member in the CNI nuclear power supply chain; successfully served ARJ21, C919, and AG600 models in the aerospace field; successfully overcame the technical problems of medium and low voltage thin-walled low vacuum adaptive pulse cables in the superconductivity field, contributing to the success of the first hypernavigation test line of the world's leading ultra-high speed low vacuum pipeline maglev transport system in China.

Risk factors: Raw material prices fluctuated greatly; offshore wind power project construction fell short of expectations; industry competition intensified; the company's new production capacity and production progress fell short of expectations; and the company's submarine cable ultra-high voltage product promotion progress fell short of expectations.

Profit forecast, valuation and rating: As a leading enterprise in the wire and cable industry, the company's main business remains stable and has achieved important breakthroughs in special markets such as nuclear power, aerospace, and superconductivity. Benefiting from a marked recovery in the prosperity of the downstream ocean wind industry and a significant increase in installation certainty in 2024-25, we expect the company's future product structure and profitability to continue to be optimized. Considering that submarine cable delivery has fallen short of expectations since this year, we lowered the company's net profit forecast for 2023/24/25 to 3.78/6.34/830 million yuan (the original forecast was 4.43/6.35/831 million yuan), and the corresponding EPS forecast was 0.28/0.46/0.61 yuan. Referring to the latest valuation level of comparable companies (select Dongfang Cable, Hengtong Optoelectronics, and Qifan Cable, which also belong to the wire and cable industry, as comparable companies; Choice unanimously expects the average PE in 2023 to be 17X). Considering that our forecast for the company's performance growth rate is higher than the average performance growth rate expected by comparable companies Choice, we gave the company a certain valuation premium, gave the company 23XPE in 2023, raised the target price by 6.4 yuan, and maintained the “buy” rating.