In the first three quarters of 2023, the company achieved operating income of 2.09 billion yuan/YoY +7.1%, and net profit of 340 million yuan/YoY +1.8%. Considering the slow performance growth rate due to wind power installations falling short of expectations in the first half of the year, we adjusted the company's net profit forecast for 2023/24/25 to 450 million/530 million/670 million yuan. Referring to the valuation levels of comparable companies Orient Cable (Wind unanimously predicted 26x PE in 2023), Sun Moon Shares (Wind unanimously predicted 2023 22x PE), and Hengli Hydraulic (Wind unanimously anticipated 30x PE in 2023), and considering the large-scale recovery of wind power installations in the second half of 2023 and ushered in an upward boom cycle, the company is expected to fully benefit from the high prosperity of the wind power industry and add new products to the market. We are optimistic about the company's long-term growth, giving the company a valuation level of 35x PE in 2023, corresponding The company's target price is 44 yuan (the original target price was 48 yuan), maintaining the “buy” rating.

The company's performance in the first three quarters of 2023 increased steadily, and net profit increased significantly in the third quarter alone. In the first three quarters of 2023, the company achieved revenue of 2,09 billion yuan (+7.1% year-on-year), net profit of 340 million yuan (+1.8% year-on-year), and net profit of 240 million yuan (-27.4% year-on-year) after deducting non-return net profit of 240 million yuan (-27.4% yoy). In the third quarter alone, the company achieved revenue of 880 million yuan (+27.1% yoy), net profit of 240 million yuan (+161.8% yoy), and net profit of 120 million yuan (+33.0% yoy) after deducting non-return net profit of 120 million yuan (+33.0% year-on-year). The main reason for the company's high performance in the third quarter was that the wind power industry was booming in the second half of the year, compounded by non-recurring profit and loss of about 121 million yuan in the third quarter. In terms of profit margin, the company's consolidated gross margin for the third quarter was 27.6% (+2.6 pcts, +2.5 pcts month-on-month). The main reason was the decline in raw material costs and the impact of scale effects. The company's net profit margin for the first three quarters was 17.0% (-0.6 pct year-on-year).

In the first three quarters of 2023, the company's four-fee rate was 10.1%, a slight decrease over the previous year. The company's ability to control fees is relatively good. In the first three quarters of 2023, the company's four-fee rate was 10.1% /y-o-y -0.74pct. Among them, sales, management, R&D, and financial expenses were 0.7% /y-o-y +0.38pct, 2.4% /y-o-y +0.28pct, 4.4% /y-o-y -0.20pct, 2.7% /y-o-y -1.2pcts, respectively. The reduction in the company's financial expense ratio is mainly due to the fact that interest on the financing of subsidiaries is no longer taken into account and the increase in interest income.

Wind power installations are recovering, and component profits are expected to be clearly restored: (1) Restrictive factors on wind power have been completely lifted, and installed capacity is expected to pick up significantly. According to Mingyang Intelligence's announcement data, the domestic wind power bidding scale in 2021/2022 reached about 63/101 GW, but due to the epidemic, model adjustments, and sea wind and sea area control approval, etc., the scale of wind power grid-connected wind power was only 47.57/37.63 GW, accumulating a huge inventory with uninstalled targets. Against the backdrop of the complete elimination of these external restrictive factors, a continuous decline in fan costs, and a clear recovery in project yield, we expect that from 2023, the overall domestic wind power installation will enter an upward boom cycle. Among them, offshore wind power is expected to increase to 8-10 GW in 2023, and offshore wind installations are expected to maintain a high CAGR of more than 40% in 2023-25. (2) The improvement in the supply and demand pattern or the stabilization of component prices is expected to improve significantly, benefiting from lower costs, and profits are expected to recover significantly. Due to weakening macro-demand, pig iron, scrap, and medium and heavy plate prices, which are raw materials for wind power components, are declining. At the same time, bearing and other component products benefit from demand recovery and category upgrades, and supply tends to be tight. We expect that in the second half of 2023, the bargaining power of component manufacturers is expected to be relatively strong, prices are relatively stable, and the price and cost gap of some core components is expected to widen, leading to significant profit recovery.

Risk factors: Downstream wind power installations fell short of expectations; the localization rate of wind power bearings fell short of expectations; raw material prices fluctuated greatly; progress in the commissioning of new production capacity fell short of expectations; major changes in the technical path; and product prices declined significantly.

Profit forecast, valuation and rating: The company is the first domestic enterprise to break the foreign monopoly and release volume of large megawatt wind power spindle bearings. Considering the slow performance growth rate due to wind power installations falling short of expectations in the first half of the year, we adjusted the company's net profit forecast for 2023/24/25 to 450 million/530 million/670 million yuan (original forecast was 710 million/887 million/1,116 million yuan). Referring to the valuation levels of comparable companies Orient Cable (Wind unanimously predicts 26x PE in 2023), Sun Moon Shares (Wind unanimously expects 22x PE in 2023), and Hengli Hydraulic (Wind unanimously anticipates 30xPE in 2023), and considering the large-scale recovery of wind power installations in the second half of 2023 and ushered in an upward boom cycle, the company is expected to fully benefit from the high prosperity of the wind power industry and add new products to the market. We are optimistic about the company's long-term growth, giving the company a valuation level of 35x PE in 2023, corresponding The company's target price is 44 yuan (the original target price was 48 yuan), maintaining the “buy” rating.