The company released its 2023 annual report and 2024 quarterly report, and the 2023/2024Q1 results increased 17%/decreased 71% year-on-year respectively. The company's new production capacity was released, and profitability was put under pressure in stages, but the long-term positive trend was not changed. Maintain an increase in holdings rating.
Key points to support ratings
The company's performance in 2023 increased 17% year on year: the company released its 2023 annual report, achieving revenue of 1,946 billion yuan, up 7.41% year on year; realized net profit of 412 million yuan, up 16.85% year on year; realized deducted non-net profit of 393 million yuan, up 9.19% year on year. 2023Q4 achieved net profit of 85 million yuan, a year-on-year decrease of 27.59% and a year-on-month decrease of 32.77%.
2024Q1's performance decreased 71% year over year: the company also released its 2024 quarterly report. In 2024Q1, the company achieved net profit of 29 million yuan, a year-on-year decrease of 70.80% and a year-on-year decrease of 65.54%.
Wind power spindle operation is steady: In 2023, the company continued to promote the “integration of casting and forging”, and continued to promote the diversified development of casting and forging products within the wind power business, achieving annual shipments of 156,500 tons of wind power products, an increase of 6.65%; the wind power industry contributed 1,618 billion yuan in sales revenue, an increase of 1.47% year on year; at the same time, benefiting from falling commodity and other raw material prices, the sector's gross margin increased 3.16 percentage points year on year to 33.50% year on year.
The transformation of new foundry production capacity affects the company's profitability in stages: Looking at the quarterly profitability of the split company, 2023Q1-2024Q1, the company's gross sales margins were 34.46%, 36.74%, 35.49%, 27.68%, and 23.91%, respectively, and net margins were 22.91%, 27.86%, 23.46%, 13.92%, and 11.43%, respectively. We have observed that 2023Q4-2024Q1's profitability is significantly low. It is expected to be mainly due to the transformation of digital manufacturing projects for core components of offshore wind power, but production capacity is still in the climbing phase, resulting in insufficient utilization and increased costs such as depreciation. However, in the long run, the commissioning of the aforementioned foundry production capacity is expected to inject new impetus into the continued growth of the company's business. In 2023, the company's foundry product revenue rose 20.02% year on year, which is significantly higher than the company's overall revenue growth rate.
It plans to invest in the construction of 280,000 tons of forging production capacity in three phases: The company also issued the “Notice on Investing in the Construction of a High-end Transmission Equipment Science and Technology Innovation Industrial Park Project (Phase 1)”. It plans to use its own capital or self-financing to invest 2,651 billion yuan to build a full-process production capacity of 280,000 tons of large-scale high-end forgings per year. The construction period of the project is 4.5 years. We believe that this project is expected to increase the company's forging production capacity, optimize the product structure, and enhance the company's overall competitiveness and profitability.
valuations
Under the current share capital, combined with the company's annual report and profit pressure during the new production capacity climbing phase, we adjusted the company's 2024-2026 earnings forecast to 1.57/2.15/2.67 yuan (the original 2024-2026 forecast was 2.20/2.61/-yuan), corresponding to a price-earnings ratio of 12.2/8.9/7.2 times; maintaining an increase rating.
The main risks faced by ratings
New customer expansion falls short of expectations; raw material price increases exceed expectations; price competition exceeds expectations; new product development falls short of expectations; wind power demand falls short of expectations; overseas development falls short of expectations.