Core views

The company released its 2023 annual report. The company achieved revenue of 1,029 million yuan in 2023, +35.04% year-on-year, net profit of 87 million yuan, +48.02% year-on-year, after deducting non-return net profit of 81 million yuan, +54.16% year-on-year. Looking at a single quarter, the company achieved revenue of 517 million yuan in 2023Q4, +24.09% year-on-year, net profit of 66 million yuan, +43.94% year-on-year, after deducting non-return net profit of 65 million yuan, +50.81% year-on-year. The company's orders for thermal power equipment increased in '23, and entered a period of release of performance in '24. According to the general trend of thermal power flexibility transformation, the National Development and Reform Commission and the Energy Administration proposed that the existing coal-fired power units “should be completely reformed” by 2027, and the company's full-load denitrification business can be expected to grow. The company's newly laid out steel slag treatment business achieved revenue of 92 million yuan in 23 years, and has now signed cooperative framework agreements with steel industry companies. Furthermore, the company has a comprehensive layout of the hydrogen energy industry chain, and the market space is broad.

occurrences

The company released its 2023 annual report

The company achieved revenue of 1,029 billion yuan in 2023, +35.04% year-on-year, net profit of 887 million yuan, +48.02% year-on-year, after deducting non-attributable net profit of 81 million yuan, +54.16% year-on-year. Looking at a single quarter, the company achieved revenue of 517 million yuan in 2023Q4, +24.09% year-on-year, net profit of 66 million yuan, +43.94% year-on-year, after deducting non-return net profit of 65 million yuan, +50.81% year-on-year.

Brief review

New orders grew rapidly in '23, and the performance release period began in '24. Under the pressure of electricity insurance and peak regulation, investment in coal power is accelerating, and the implementation of the electricity price policy for coal and electricity capacity is expected to further guarantee the enthusiasm for building new thermal power. According to our statistics, in 2023, thermal power approved 71 GW, -14% year over year, 118 GW started, +71% year over year. Approval remained at a high level, and construction started increased dramatically. The company's slag energy saving and environmental protection treatment systems, flue gas energy saving and environmental protection treatment systems, etc. are essential auxiliary equipment for new thermal power plants. Demand is expected to increase significantly in the context of accelerated investment in coal power. Among them, the company's low-temperature flue gas waste heat deep recovery system achieved revenue of 245 million yuan in '23, +100.10% over the same period, and gross margin increased to 28.63%, +6.94 pct year on year. The company's product orders increased significantly in '23, and performance growth in '24 is guaranteed.

Thermal power flexibility transformation is trending, and the company's full-load denitrification business can be expected to grow. In January 2024, the National Development and Reform Commission and the Energy Administration's “Guiding Opinions on Strengthening Peak Power Grid Energy Storage and Intelligent Scheduling Capacity Building” stated that in order to better coordinate development and safety, ensure safe and stable supply of electricity, and promote a clean and low-carbon transformation of energy and electricity, efforts are now being made to improve supporting power peak-shaking capabilities, carry out in-depth flexible transformation of coal power units, and achieve “thorough reform” of coal power units by 2027. In regions with a high share of new energy and insufficient peak shifting capacity, explore deep peak shifting of coal power units on the premise of ensuring safety, and the minimum power generation output reaches 30% below the rated load. Along with the continuous growth of new energy installations, consumption pressure is highlighted, and thermal power flexibility is expected to become the main force for new energy peak shaving. The company's full-load denitrification system is an essential part of thermal power flexibility transformation, and the company's market share is high. At the same time, the company has made progress in research and development projects such as ultra-low load stable combustion systems for thermal power plants and low-load stabilized combustion burners based on concentration separation and preheating combustion. If stabilized combustion transformation opens up the market, the company's touchable market space for flexible transformation will increase dramatically.

Steel slag treatment and photovoltaic hydrogen production projects have been launched, and the market space is broad. Using the field of energy saving and environmental protection in the power industry as a breakthrough, the company plans to expand its technical products to the steel, chemical, metallurgy, garbage disposal and other industries. Currently, it has signed cooperative framework agreements with steel industry enterprises to jointly promote technology research and development for the comprehensive utilization of steel metallurgy slag. In 2023, the steel slag treatment system achieved revenue of 92 million yuan and a gross margin of 40.43%. Following the introduction of a high-speed toll exemption for hydrogen energy vehicles in Shandong Province, a work conference was held on April 16 to further promote the development and promotion and application of the entire green hydrogen industry chain. Relevant officials said they would explore all free highway fees for hydrogen energy vehicles, encourage the city people's government to not limit access to hydrogen energy trucks in urban areas, and encourage cities that are in a position to do so to promote the renewal of hydrogen energy equipment and explore the development of off-grid electrolyzed water hydrogen production. It will also promote the planning and construction of hydrogen fueling stations and charging infrastructure in an integrated manner to subsidize the reference charging infrastructure for hydrogen fueling stations. Accelerate the launch of the hydrogen energy industry policy side. The company has a comprehensive layout of the hydrogen energy industry chain, with hydrogen production (electrolyzer), hydrogen storage (solid state hydrogen storage), and hydrogen purification technology. It has 23 years of bidding for a 120MW photovoltaic hydrogen production project, and plans to connect to the grid in 24 to create the first hydrogen energy logo project. More green hydrogen projects are worth looking forward to in the future.

Profit forecast: The company's net profit for 2024-2025 is expected to be $177 million and $241 million, respectively, maintaining a “buy” rating.

Risk warning: Coal and electricity investment falls short of expectations, raw material prices fluctuate, and coal power investment falls short of expectations: Under the urgent demand of guaranteed supply+peak shifting, coal power investment has returned to growth since 2021, and has accelerated markedly since August 2022. However, if coal and power companies fall short of expectations due to operating difficulties, or the pace of bidding falls short of expectations, the company may face the risk that orders for related products will fall short of expectations;

Fluctuating raw material prices: Currently, the company's main products are energy saving and environmental protection equipment for boilers. The main raw materials are steel, mechanical and electrical equipment materials, etc., accounting for more than 60% of the company's operating costs, so the market price of raw materials will have a big impact on the company's profit level; the progress of thermal power flexibility transformation falls short of expectations: thermal power flexibility transformation is one of the key measures to improve consumption capacity in the context of new energy development, but flexible transformation will incur investment costs, increase operating costs, etc., for coal power companies. If the auxiliary service market and system correspond to the market system and system Subsidies falling short of expectations may affect the enthusiasm of coal and power companies to carry out flexible reforms.