As a global leader in information and energy interconnection, Hengtong's demonstrates accelerated development. Hengtong focuses on communication and energy sectors, with its main businesses including optical communication, smart grids, marine energy and communication, industrial intelligence, and copper conductors. In recent years, the company has operated steadily, achieving revenue/net profit of RMB23.177/1.249bn in 2023H1, +4.85%/+45.27 yoy. Notably, in 2023H1, its GPM/NPM rose by 0.62pct/1.19pct yoy to 16.85%/5.38%. The company has demonstrated robust management capabilities, weathering the industry downturn with minimal impact.
Industry Outlook Analysis: 1) Offshore Wind Power: High demand in domestic and international markets, with the G7 group committing to jointly increase the cumulative capacity of offshore wind power by 150GW by 2030. China plans to construct five large- scale offshore wind power bases. 2) Marine Communication: Global data centers are experiencing dual development in quantity and scale, presenting new opportunities for submarine cable construction. 3) Optical Communication: The optical cable market has a stable structure. The construction of 5G base stations and gigabit optical networks is progressing steadily. The data and computing industries are driving new demand for high- end optical modules. 4) Smart Grids: A stable foundation with improving fundamentals, increasing investment in smart grid intelligence, and policy support promoting high- quality industry development.
Investment Highlights Analysis: 1) Optical Modules: The AI sector is booming, driving
prosperity in the optical communication infrastructure market. The expansion of data centers is leading to an upgrade in the data transmission industry, resulting in high demand for high-end optical modules. The company has strategically positioned itself, and its products have passed testing and are about to enter mass production. 2) Marine Communication: Submarine cables, influenced by the AI industry chain, continue to exhibit strong demand. The company is the only domestic provider of cross-ocean submarine cable system construction and integration solutions, enjoying a technological barrier advantage. 3) Marine Energy: The company has a complete construction industry chain and is one of the domestic manufacturers capable of providing complete lifecycle services for submarine cables. 4) Smart Grids: Deepening the inherent industry chain and actively laying out new paths for incremental growth.Earnings Forecast & Rating: We expect the revenue and net profit of the company in 2023-2025 to be Rmb50.148/54.732/59.710bn and Rmb1.948/2.466/2.884bn, with EPS of Rmb0.79/1.00/1.17, implying P/E at 16.79x/13.26x/11.34x. We initiate coverage with "Buy" rating.
Risks: Fluctuations in upstream raw material prices, macroeconomic changes, lower-than- expected developments in AI, changes in the external environment such as Sino-US trade friction.
