\u3000\u3 Shengda Resources Co.Ltd(000603) 606 Ningbo Orient Wires & Cables Co.Ltd(603606) )
Key investment points
The company was founded in 1998 and started with land cable. Since 2005, the company has made great efforts in submarine cable technology to fill the gap in the Chinese market and break the monopoly of foreign technology. It was listed on the Shanghai Stock Exchange in 2014. Benefiting from the rush to install offshore wind power, the submarine cable business broke out in 2018, driving the company’s volume and profits. From 2019, the market share of submarine cable exceeded Jiangsu Zhongtian Technology Co.Ltd(600522) and ranked first, with a stable leading position. From 2018 to 2021, the compound growth rate of the company’s revenue reached 37.91%. In 2021, the proportion of submarine cable + marine engineering revenue exceeded 50% for the first time. In the future, sea and land will go hand in hand and driven by two engines.
Offshore wind power is a high-quality growth track of the 14th five year plan, and the newly installed capacity of the 14th five year plan is expected to exceed 50gw: compared with land wind, sea wind has significant advantages: 1) offshore wind resources are rich and have great development potential. Coastal provinces have supported the development of sea wind, which is expected to exceed 50gw according to the plan, and the CAGR will reach 36% from 2022 to 2025; 2) The utilization hours of sea breeze are high. With the large-scale cost reduction and the decline of construction costs after rush loading, parity projects have emerged, with the capital IRR of more than 6%. Guangdong, Fujian, Jiangsu, Zhejiang and Shanghai are expected to achieve parity in 2022, while other coastal provinces are expected to achieve parity in 2023; 3) The intensity of sea wind shear and turbulence is small, the power generation is more stable, and it is close to the load center, so there is no need to allocate energy storage forcibly and reduce the initial investment. The above advantages will lock in the high growth of offshore wind power.
Under the trend of far-reaching sea + large-scale, the unit value of submarine cable will increase, and the market scale is expected to be about 37.5 billion in 2025. Most of China’s grid connected offshore wind power projects are offshore projects, with an average offshore distance of 25-30km. Referring to European experience, the offshore wind in the 14th five year plan is the general trend, and the average offshore distance is expected to reach 40-50km. The outgoing submarine cable will be upgraded from the current mainstream 220kV AC to 500kV AC and DC, and the unit value will be significantly increased. The single kilometer value of 500kV three core AC outgoing submarine cable is about twice that of 220kV large section submarine cable. In addition, with the large-scale fan and wind farm, the application of 66kV collecting submarine cable will make the project more economical as a whole, and its value per kilowatt is about twice that of 35kV. We estimate that the market demand of submarine cable (power collection + transmission + laying) corresponding to the installed capacity of sea wind turbine will be about 37.5 billion yuan in 2025, and the CAGR will reach 46% from 2022 to 2025.
The competition pattern of submarine cable is stable, and the leading market share is expected to rise steadily: Ningbo Orient Wires & Cables Co.Ltd(603606) and Jiangsu Zhongtian Technology Co.Ltd(600522) are submarine cable duopoly, with CR2 exceeding 60%. With the offshore + large-scale of sea breeze, the rise of submarine cable voltage level and the increase of single submarine cable length will put forward higher requirements for submarine cable enterprises. The high-voltage submarine cable technology of head enterprises has been broken through through early demonstration projects. Second tier enterprises have missed the best opportunity to get on the bus. At present, they only have the production capacity of submarine cables with voltage level of 220kV and below. In addition, the production expansion cycle of submarine cable is long, and the construction only takes 2-3 years, which is difficult to release in the short term. With the advantages of technology and production capacity, leading enterprises are expected to expand market share.
High end technology reserves take the lead in industrialization, scale effect and cost advantage of advanced production capacity construction: the company has a deep accumulation of submarine cable technology, and the industrialization speed is ahead of the industry in the process of penetrating into high-end products. 1) The application of 500kV single core and three core AC submarine cable soft joint technology is the first time in the industry, which has overcome the core technical problems of long-length AC submarine cable; 2) China was the first to master the marine umbilical technology and realize industrialization. The first domestic large-length marine umbilical was independently developed and successfully delivered in 2018. The marine umbilical cable is a customized product with a gross profit margin higher than that of submarine cable. Since 2021, the acquisition of orders in the deep-sea oil and gas field has accelerated and the amount of single orders has increased significantly; 3) The only two in the industry have high-voltage DC submarine cable operation performance, the strength and progress of ultra-high voltage flexible direct R & D are leading, and the industrialization will be accelerated under the far-reaching sea trend. The advanced production capacity of phase I of the eastern (Beilun) base and the southern (Yangjiang) base will reach production capacity and be released in 22q1 and 23h1. On the one hand, it is expected to reduce costs by virtue of scale effect; On the one hand, high voltage level means that large cross-sectional area, production difficulty and time will be greatly improved. Advanced production capacity improves production efficiency and can better control costs. With the promotion of parity, the gross profit margin of submarine cable gradually returns to the reasonable level of the industry. With the cost advantage, the gross profit margin of the company is expected to be more than 5% higher than that of the second tier.
Profit forecast and investment rating: it is estimated that the net profit attributable to the parent company in 2022, 2023 and 2024 will be 1.394 billion yuan, 1.941 billion yuan and 2.511 billion yuan respectively, with a year-on-year increase of + 17% / 39% / 29% and eps2 03 / 2.82/3.65 yuan, corresponding to pe23 / 17 / 13 times. Considering the rising prosperity of the industry in which the company is located, as the leader of submarine cable, the market share of the company is expected to rise steadily, and the revenue and performance are expected to grow rapidly. We are optimistic about the long-term development of the company, cover it for the first time, and give a “buy” rating.
Risk warning: the installed scale of sea breeze in the 14th five year plan is less than expected; Intensified competition leads to the contraction of market share; Parity, rising prices of raw materials lead to declining profits, etc
