Company profile

Neway Valve is a leading domestic provider of middle-to-high-end industrial valves, specializing in comprehensive industrial valve solutions for petroleum, chemical, natural gas, electricity and other energy sectors. Currently, beyond traditional petroleum and natural gas projects, the Company's products are rapidly expanding into LNG, fine chemical and nuclear power markets, and are utilized in clean energy development projects such as offshore wind power, hydrogen energy, geothermal energy, bioenergy, solar energy, and carbon capture initiatives.

Investment Summary

Steady Performance Growth with Sustained Profitability

From 2016 to 2023, the Company experienced continuous growth in both revenue and net profit. Revenue increased from RMB2.05 billion to RMB5.54 billion, representing a compound annual growth rate (CAGR) of 15.3%. Net profit attributable to the parent company grew from RMB220 million to RMB720 million, with a CAGR of 18.5%. From Q1 to Q3 2024, the Company achieved operating income of RMB4,455 million (up 5.09% year-on-year) and net profit attributable to the parent company of RMB828 million (up 40.69% year-on-year). The Company's products are closely tied to oil prices. In 2023 and the first three quarters of 2024, the global demand for energy infrastructure increased significantly, driving strong growth in the Company's offshore business, leading to notable improvements in orders, sales, etc. Additionally, steel prices remain in a downward trend, and the decline in raw material prices has contributed to a significant increase in the Company's gross margin. According to the monitoring statistics of China Iron and Steel Association, the average China Steel Price Index in the first three quarters of 2024 stood at 103.66 points, reflecting a year-on-year decrease of 7.67%. Meanwhile, the average import price of iron ore was USD111.6 per ton, marking a year-on-year decline of 0.8%. In the first three quarters of 2024, the Company recorded a gross margin of sales of 36.72% (up 5.78pct year-on-year). The growth rate of profit significantly outpaced that of revenue, demonstrating the Company's strong profitability.

Overseas Revenue Expected to Achieve High Growth Rate

The global valve industry offers a vast market potential with a fragmented competitive landscape, offering substantial opportunities for the growth of domestic manufacturers. As reported by Global Information, the global industrial valve market was valued at USD72.2 billion in 2023, and is expected to reach USD134.68 billion by 2032, with a CAGR of 7.17%. The global valve market is highly fragmented, with the industry leader CR9 holding only 13% of the total market share in 2022. The Company's global market share is approximately 1%, indicating significant room for growth. Owing to the deepening of "Belt and Road" cooperation and "Going Global" of domestic EPC general contractors, the Company's overseas revenue is expected to experience rapid growth.

Smooth Expansion across Multiple Downstream Industries, with Thriving Sectors Driving Growth

In recent years, industries such as oil and gas and nuclear power have experienced significant growth, with shipbuilding orders, capital expenditures on offshore oil and gas exploration, and LNG compression and transportation projects remaining at elevated levels, driving increased demand in the valve industry. The Company continues to expand its downstream presence, maintaining intensive strategic partnerships with global energy giants such as SHELL, TOTAL, PetroChina and Sinopec engaging in traditional oil and gas projects. At the same time, it is increasing its penetration into sectors such as natural gas, fine chemicals, marine engineering, power plans, long-distance pipelines, and new energy. In the first half of 2024, the Company successfully undertook several international FPSO projects and won domestic first-level certifications for packaged procurement of high-end nuclear power products such as gate valves, globe valves and check valves. The increases in the volume of new business and the market share are set to further drive the Company's performance growth.

Investment Thesis

As a leader in middle- and high-end industrial valves, the Company focuses on advancing technology and processes, continuously enhancing its R&D, production and supply capabilities across the upstream industrial chain. By fostering deep, mutual development with high-end users at home and abroad, the Company has established strong industry barriers, enabling it to benefit from both domestic import substitution with high-end products and the global industry boom, offering significant potential for growth. We are highly optimistic about the Company's development, as it demonstrates strong growth potential and robust industry barriers, positioning it to command a premium.As for valuation, we expected diluted EPS of the Company to RMB 1.30/1.60/1.89 of 2024/2025/2026. And we accordingly gave the target price to RMB 30.5, respectively 19x P/E for 2025. "Accumulate" rating. (Closing price as at 10 February)

Risk

Progress of new production line is below expectations

Macroeconomic downturn affects product demand

Sharply rising raw material prices or sharply falling product prices

Financials

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