Projected profit decline of 85%-90% year over year in 2023

The company announced its 2023 performance forecast: In 2023, the company is expected to achieve net profit of 354-530 million yuan, a year-on-year decrease of 84.7%-89.8%, corresponding to a net profit loss of 70,000-870 million yuan in 4Q23, changing from profit of 570 million yuan to loss over the previous month. The company's performance forecast fell short of market expectations, mainly due to 1) sales of 4Q23 power plants falling far short of previous expectations; 2) 4Q23 sea wind fan shipments were low, mainly due to loss-making landwind fan shipments.

The profit of landwind fans was under pressure in 2023. Sea Wind shipments were ahead of peers, but shipments were generally lower, and power plant sales fell far short of previous targets. Due to the continuous impact of price pressure in the industry since Land Wind Price Parity, the profit of the company's land wind fans has continued to be under pressure since 2H22, dragging down the company's overall performance. The 1-3Q23 company shipped 1.98 GW of sea wind fans. We expect the company to ship 2.5 GW of sea wind in the full year of 2023, a slight decrease over the previous year. The performance is average but still clearly ahead of its peers. The company's sales volume of power plants in 2023 fell far short of the previous target, mainly due to the delay of the transaction that was originally planned to be completed in 4Q23 due to objective reasons.

Key points of interest

The company's sales of ocean wind fans and power plants are expected to return to normal in 2024. The domestic offshore wind power industry continued to be sluggish in 2023, but we have observed that projects in many regions are actively undergoing pre-construction procedures. We expect that in 2024, the industry is expected to be tendered and the scale of construction under construction is expected to reach 15-20 GW by the second half of 2024, showing a strong recovery compared to the sluggish state of actual construction in 2022 to 2023. The company has a strong presence in Guangdong, Hainan, Shandong, Guangxi and other regions. We expect the company to see good growth in sea wind fan shipments and profits in 2024. Furthermore, as of the end of 3Q23, the company was operating 1.6 GW of new energy power plants, and 3.9 GW is under construction. We expect the power plant sales business to return to normal in 2024 and become the main contribution driven by structural profits. The land wind fan side is under continuous competitive pressure from the industry, but we believe that the competitive pressure on the industry has not intensified. We expect the company to benefit from reduced parts costs, and the loss margin of land wind fans is expected to narrow.

Profit forecasting and valuation

Due to continued competitive pressure for land wind fans, poor prosperity in the sea wind industry, and sales of the company's power plant business falling short of expectations, we lowered the company's profit forecast for 2023 by 88.6% to 499 million yuan. In 2024, we expect the company to still face the drag of landwind fans, and cut the company's profit forecast by 48.3% to 2,681 billion yuan.

At the same time, we have introduced a new profit forecast of 3.247 billion yuan for the company in 2025. The company's current stock price corresponds to the price-earnings ratio of 7.4 and 6.1 times in 2024 and 2025. We are still optimistic about the company's return to normal operating performance in 2024 compared to 2023. We are optimistic about the company's leading position in the sea wind fan and power plant business, but due to the reduction in profit forecasts, the company's target price was lowered by 38.7% to 11.8 yuan, which corresponds to 10.0 times the price-earnings ratio in 2024, and there is 35.3% room for improvement compared to the current stock price.

risks

Increased competition in the industry puts pressure on the company's fan shipments and profit margins; industry demand falls short of expectations.