Incident: The African project in Angola has made significant progress, and the “Electricity Supply Contract” has been officially signed.

On April 30, the company announced that it plans to increase the capital of its wholly-owned subsidiary Huatong Angola by no more than US$175 million, including US$10 million in its own capital and US$165 million in bank loans. On May 26, the company announced that the company and its subsidiary Huatong Angola signed a “Electricity Supply Contract” with the Angolan National Transmission Network franchisee to supply electricity for Huatong Cable's construction project in Angola. Electricity supply is an important issue for electrolytic aluminum production capacity, and the signing of this contract marks a phased progress in the Angolan project.

The two main businesses of “cable+oil service” are developing collaboratively, the cable industry is growing steadily, and the oil service order situation is improving.

The company's revenue in 2023 was 5.364 billion yuan, up 3.30% year on year, and net profit to mother was 364 million yuan, up 41.74% year on year. By industry, (1) The wire and cable industry's 2023 revenue was 3.75 billion yuan, accounting for 70.37% of revenue, up 9.08% year on year, gross profit margin was 14.99%, up 3.66 pct year on year, mainly due to the simultaneous development of domestic and foreign markets. (2) The oil service industry had revenue of 1,401 billion yuan, accounting for 26.12% of revenue, down 8.07% year on year, gross profit margin of 23.78%, up 2.73 pct year on year. The company's oil service product order situation is improving. Orders for continuous tubing and intelligent pipe cables for its extended products continue to increase, and it has been supplied to domestic and foreign companies such as CNOOC, CNPC, Anton Petroleum, Halliburton, and Schlumberger.

AI infrastructure construction accelerates the transformation of the power industry, takes the lead in the North American market, and is expected to benefit as a priority.

The company continues to improve the layout of overseas production capacity and sales network. Production bases in Tanzania and Cameroon have been built separately for the African market, and production capacity investment amounts have been increased one after another. For the North American market, the company has built a production base in Busan, South Korea, and is speeding up the construction of a production base in Panama, which has significantly enhanced supply stability to North American customers.

Current AI-related infrastructure investments are driving huge demand for electricity. The IEA anticipates that the three major sectors of data center/artificial intelligence and cryptocurrency could double their contribution to global electricity demand by 2026. The rapidly growing demand for electricity has accelerated the pace of transformation in the power industry. The company's cable products are widely used in power transmission and distribution, etc., and is one of the leading companies in the US UL certification field, which is expected to benefit first.

A leader in the domestic cable industry, continues to improve the overseas production capacity layout, and for the first time, coverage was given an “increase in wealth” rating.

The company has been deeply involved in the cable industry for more than 30 years. At present, it has formed a “cable+oil service” dual business, and domestic and foreign markets are developing collaboratively. As the company continues to improve its production capacity layout in overseas markets, the company's revenue is expected to grow further. Net profit from 2024 to 2026 is estimated to be 4.53/5.77/748 million yuan, respectively, corresponding to PE of 12.2/9.6/7.4 times in 24/25/26, which is the first time covered with a “gain” rating.

Risk warning: macro-environmental risk; market competition risk; geopolitical risk; management risk, etc.