\u3000\u3 Shengda Resources Co.Ltd(000603) 606 Ningbo Orient Wires & Cables Co.Ltd(603606) )
Event overview: on March 24, the company released the annual report of 2021. The annual operating revenue was 7.932 billion yuan, a year-on-year increase of 57.00%, and the net profit attributable to the parent company was 1.189 billion yuan, a year-on-year increase of 33.98%; Deduct non net profit of RMB 1.149 billion, with a year-on-year increase of 39.44%. In a single quarter, the company achieved an operating revenue of RMB 2.159 billion in 2021q4, with a year-on-year increase of 41.10% and a month on month decrease of 9.54%; The net profit attributable to the parent company was 227 million yuan, a year-on-year decrease of 17.02% and a month on month decrease of 29.95%.
Affected by raw materials and shipment structure, the gross profit margin decreased.
In terms of profitability, the company’s gross profit margin in 2021 was 25.34%, a year-on-year decrease of 5.21 PCTs. Excluding the impact of freight adjustment to cost, it decreased by about 4.7% year-on-year; The gross profit margin of Q4 in a single quarter was 18.46%, with a year-on-year / month on month decrease of 11.5% / 6.8% respectively. We believe that the main reasons affecting the gross profit margin include: 1) the rise in the price of copper, the main raw material; 2) In the whole year, the company’s revenue from submarine cable and offshore engineering accounted for more than 50% for the first time, but 2021q4 company’s submarine cable, offshore engineering and land cable realized revenue of 752 / 225 / 1177 million yuan respectively. The revenue of submarine cable business with high gross profit decreased by 24% month on month compared with 2021q3. It may be affected by the delayed recognition of revenue for some rush loading orders. In terms of delivery structure, land cable and collector submarine cable with low gross profit margin are delivered more.
Sufficient orders are in hand, which strongly supports the performance.
According to the company’s annual report, by the end of February 2022, the company’s orders on hand were 6.311 billion yuan, including 2.853 billion yuan for submarine cable system, 2.801 billion yuan for land cable system and 657 million yuan for offshore engineering. Considering the recent bid winning projects of Yuedian Yangjiang Qingzhou No. 12, CGN Xiangshan tuci and Netherlands offshore wind power transmission project, it is estimated that the scale of submarine cables and offshore orders in hand by the company has exceeded 5 billion yuan so far. In terms of capacity layout, the company’s eastern base in Ningbo, Zhejiang has about 6 billion submarine cable capacity, and the phase I 1.5 billion submarine cable capacity of Yangjiang base is expected to be put into operation in early 2023, and the phase II site has been reserved.
Submarine cable products have been upgraded iteratively, and the head manufacturers have opened up their competitive positions.
From the current trend, the submarine cable [35kV → 66 / 220kV → 330kV → 500kV (flexible and straight), dynamic cable] is becoming clearer. In the future, new entrants may face fierce competition at low voltage levels, i.e. below 35KV and 220kV. For products with higher voltage levels, second tier enterprises and first tier enterprises have obvious differences in technical reserves, project experience and delivery capacity. At present, the company has the design, manufacturing and engineering service capabilities of high-end energy equipment such as 500kV AC sea and land cable system and ± 535kv DC sea and land cable system. It is expected to maintain technology leadership and order acquisition advantages in the subsequent competition, and its profitability is also expected to benefit from the production and delivery of high value-added products.
Investment suggestion: we expect the company’s revenue from 2022 to 2024 to be RMB 9.372 billion, RMB 12.418 billion and RMB 14.442 billion respectively, with a growth rate of 18% / 33% / 16%; The net profit attributable to the parent company was 1.331 billion yuan, 1.974 billion yuan and 2.348 billion yuan respectively, with a growth rate of 12% / 48% / 19%, corresponding to 29x / 19x / 16x PE in 22-24 years, maintaining the “recommended” rating.
Risk warning: downstream demand is less than expected; The price of upstream raw materials fluctuates violently, and the industry competition intensifies
