\u3000\u3 Shengda Resources Co.Ltd(000603) 606 Ningbo Orient Wires & Cables Co.Ltd(603606) )
Event: the company released the first quarterly report of 2022, realizing an operating revenue of 1.816 billion yuan, a year-on-year increase of 25.60% and a month on month decrease of 15.88%. The net profit attributable to the parent company was 278 million yuan, an increase of 0.16% year-on-year and 22.47% month on month. The net profit attributable to the parent company after deducting non profits was RMB 277 million, with a year-on-year increase of 0.76% and a month on month increase of 42.59%.
Q1 revenue was basically in line with expectations. The optimization of product delivery structure led to the recovery of comprehensive gross profit margin. Under the slowdown of customer collection, the large amount of credit impairment loss was withdrawn, resulting in the short-term pressure on the company’s performance. Q1 company achieved an operating revenue of 1.816 billion yuan, a year-on-year increase of 25.60% and a month on month decrease of 15.88%. We believe that the revenue is basically in line with expectations: 1) the delivery and confirmation of the company’s cable products are often concentrated in q2q3, Q1 is the traditional off-season, which is inferior month on month; 2) In terms of segment revenue, land cable / submarine cable / offshore engineering achieved 799 / 741 / 271 million yuan respectively, with a year-on-year increase of 23.09% / 23.45% / 38.30%. The company continued to cultivate its main business, and the scale of various businesses increased significantly compared with the same period last year. Q1 company’s overall gross profit margin was 27.14%, up 1.8pct month on month. We believe that the improvement of the company’s comprehensive gross profit margin mainly comes from the optimization of product delivery structure. The products delivered in 22q1 are mainly submarine cables with high gross profit, while the products delivered in 21q4 are mainly land cables with low gross profit. Therefore, the gross profit margin rebounded month on month. In terms of net interest rate, Q1 net profit was lower than expected, mainly due to the slow recovery of accounts receivable. Due to the slowdown of some customers’ payment collection under the disturbance of the epidemic, the company added 877 million yuan of accounts receivable from January to March, and the company accrued 43.85 million yuan of credit impairment loss at the proportion of 5%. We believe that the actual occurrence probability of this provision is small, mainly because the company’s customers are mainly Central and state-owned enterprises, which have strong financial strength, and the probability of collection or delay is small, so the subsequent impairment is expected to be reversed. After excluding the impact, the actual net profit of the company was about 322 million yuan, a year-on-year increase of 15.94%.
The entry threshold of submarine cable industry is high, and it is difficult for new entrants to break through quickly. As the industry leader, the company fully enjoys the dividends brought by the rapid development of offshore wind power industry. As an essential part of marine wind transmission, submarine cable has barriers such as complex production processes, high technical barriers, long certification cycle and complex installation and laying, and has high requirements for the qualification and technology of enterprises. Therefore, it is difficult for new entrants to break through quickly. In recent years, offshore wind power has developed rapidly. According to the review of the Chinese Academy of engineering, according to the average installed density of 8 MW / km2, the installed capacity of offshore wind power in China can reach 3009gw, and the installed prospect is broad. As a leader in the submarine cable field, the company will fully benefit from the high demand for submarine cable orders under the growth of sea wind installation. As of 22q1, the company’s orders in hand reached a record high of 9.187 billion yuan, including 5.464 billion yuan for submarine cables, 2.884 billion yuan for land cables and 839 million yuan for marine engineering. The total number of new orders in the marine sector accounted for 69% of all orders. We believe that subsequent orders in the marine sector are expected to become the main force of the company’s performance growth.
The company deeply focuses on its main business, deeply cultivates technological innovation and consolidates its leading position. The company is deeply engaged in the cable industry, focusing on the R & D, design, production and laying of land cable, sea cable and marine engineering. The company’s bid winning project Yuedian Yangjiang Qingzhou No. 1 and No. 2 offshore wind farms will apply 500kV three core submarine cables for the first time. After successful delivery, it will become the first company with relevant technical strength in the world, and its position at home and abroad will be further improved. We believe that with the company stepping up its recognition in the overseas market and international market, the company is expected to maintain its stable position.
Profit forecast and investment rating of the company: we are optimistic about the broad growth space of the offshore wind power industry and recognize the technical strength accumulated by the company for decades. With the release of high demand for submarine cables driven by the improvement of offshore wind power installation, the company is expected to continue to maintain abundant orders and consolidate its leading position. We estimate that the operating revenue from 2022 to 2024 will be 9.119 billion yuan, 11.453 billion yuan and 14.843 billion yuan respectively, the net profit attributable to the parent company will be 1.354 billion yuan, 1.815 billion yuan and 2.381 billion yuan respectively, the EPS will be 1.97, 2.64 and 3.46 yuan respectively, and the corresponding PE of the current stock price will be 22.4, 16.7 and 12.8 times respectively. Maintain a “strongly recommended” rating.
Risk tip: the company’s order delivery was less than expected, the growth of on-hand orders was less than expected, the release of production capacity was slower than expected, and the decline of product gross profit margin exceeded expectations.
