In recent years, the performance of Hengrun shares (603985.SH) has fallen continuously, and in 2023, it will turn from profit to loss, showing its first loss after listing. According to the annual report disclosed on the evening of April 24, Hengrun Co., Ltd. will achieve operating income of 1.849 billion yuan in 2023, a year-on-year decrease of 4.94%; the net profit loss attributable to the parent company was 34.9855 million yuan, a year-on-year decrease of 136.91%; The net profit loss after deducting non-profits was 67.6018 million yuan, a year-on-year decrease of 198.18%.
In recent years, the market competition in the wind power industry has intensified, and Hengrun Co., Ltd. has benefited from the mass production of its subsidiary Hengrun transmission products, and the revenue of wind power bearings has increased significantly, and the overall income from the wind power industry has caught up with 2022. However, the gross profit margin of wind power bearing products was negative, dragging down the overall profit. The computing power business that will be cut into in 2023 is still in its infancy, and it has not yet carried the banner of performance.
The parity pressure of the wind power industry is transmitted to the upstream parts enterprises, and due to the compression of profit margins and the demand for cost reduction, Hengrun Co., Ltd. terminated the large-scale finishing forging expansion project with an annual output of 50,000 tons of 12MW offshore wind turbines (hereinafter referred to as the "forging expansion project").
Net profit has been declining, and the computing power income is still less than 10 million
According to the data, Hengrun Co., Ltd. landed in the capital market in 2017 and is a precision machinery manufacturer that can provide customers with one-stop services for design, forging and finishing. Relying on the manufacturing capabilities of forgings and precision machining, the company's products cover wind power flanges, wind power bearings, gas turbine components, nuclear power components, pressure vessels, offshore oil and gas equipment, etc.
From 2021 to 2023, the net profit attributable to the parent company of Hengrun Co., Ltd. has fallen three times in a row, and the decline has continued to expand, which is -4.59%, -78.55%, and -136.91% respectively, and finally reduced to a loss in 2023.
The profit and loss of performance comes from many reasons, affected by the macroeconomic situation, the domestic wind power market and customer demand, and the competition in the wind power industry has intensified. In particular, the recovery of offshore wind power business has been slow, the start-up of offshore wind power projects has slowed down, the scale of investment and construction has declined, and the market demand has been insufficient.
On the other hand, with the transfer of Hengrun Transmission's construction projects to fixed assets, the provision for depreciation has increased significantly. In the case of insufficient market demand, the capacity utilization rate of Hengrun Transmission is relatively low, and the unit cost rises accordingly. In addition, due to the fact that the production capacity of Hengrun Transmission is not full and the unit cost is high, according to the current market reference price, the bearing products of Hengrun Transmission have been calculated for inventory decline. It is reported that the industry in which Hengrun Transmission is located is the rolling bearing manufacturing industry, with a net profit of -114 million yuan in 2023.
From the perspective of different industries, the wind power industry is the main source of income for Hengrun shares. Among them, the wind power tower flange industry achieved a revenue of 814 million yuan, a year-on-year decrease of 11.33%, and the reason for the decline in revenue was due to the intensified competition in the wind power industry and the decline in prices. The wind power bearing industry, which also belongs to the wind power industry, achieved a revenue of 234 million yuan, a year-on-year increase of 108.14%, mainly due to the mass production and sales of three-row independent pitch bearings of Hengrun Transmission. Benefiting from the large increase in revenue of the wind power bearing industry, the overall revenue of the wind power industry of Hengrun Co., Ltd. will catch up with 2022, with a slight increase of 1.7%.
However, wind power bearing-related products have not made a profit. According to the data, the gross profit margin of wind power bearings is -16.91%, a decrease of 19.64% from 2022, the largest decline among all industries, which largely affects the overall gross profit margin. In 2023, the company's gross sales margin will be 8.24%, a year-on-year decrease of 24.61%.
The machinery industry achieved revenue of 193 million yuan, a year-on-year increase of 22.16%, mainly due to the overall stable growth of the construction machinery industry, and the industry prosperity is high, but the gross profit margin will decline by 9.51% compared with 2022.
It is worth mentioning that the computing power business area that was cut into in the third quarter of 2023 has also produced benefits. On August 2, 2023, Hengrun Co., Ltd. and Shanghai Liuqi jointly invested in the establishment of Shanghai Runliuchi, and Shanghai Runliuchi acquired 100% of the equity of Wuhu Liuqi held by Shanghai Liuqi in August of the same year. During the reporting period, Wuhu Liuchi participated in the construction of the Wuhu Cluster (Runliuchi) Intelligent Computing Center of Eastern Data and Western Computing.
The main business of Shanghai Runliuchi includes the establishment of algorithm models, the sales of new intelligent computing servers, the construction and operation and maintenance of intelligent computing centers, the external leasing of computing power, and the provision of consulting services for vertical models researched by university research teams. Up to now, Shanghai Runliuchi's computing power business is still in the early stage of start-up, with a revenue of 6.783 million yuan in 2023.
During the reporting period, Hengyu Metal and Shanghai Runliuchi, subsidiaries of Hengrun Co., Ltd., signed a total of 1.033 billion yuan of computing equipment procurement contracts including tax, and paid 689 million yuan for the purchase of computing equipment, some of which were breached due to the supplier's inability to deliver on time. As of the end of 2023, Hengrun Co., Ltd. has arrived with a tax-included amount of computing power equipment of 355 million yuan, has received a refund of 110 million yuan of prepaid computing equipment, and the remaining tax-included transaction amount of 569 million yuan has not yet been delivered.
Fundraising project "folded"
At the same time as the annual report was disclosed, Hengrun also announced the latest progress of the private placement project.
In 2021, Hengrun Co., Ltd. issued 74,129,500 shares to Jining Urban Investment Holding Group Co., Ltd. at an issue price of 19.88 yuan per share, raising a total of 1.474 billion yuan, and the actual net amount of funds raised after deducting the issuance expenses was 1.454 billion yuan.
The above-mentioned raised funds were invested in forging expansion projects, annual output of 4,000 sets of large-scale wind power bearing production line projects, and annual output of 100,000 tons of gear deep processing projects, with an investment of about 362 million yuan, 338 million yuan, and 754 million yuan respectively.
However, in addition to the forging capacity expansion project, the other two projects were successfully completed. The annual output of 4,000 sets of large-scale wind power bearing production line project was put into use in July 2022, the bearing production line has been basically completed during the reporting period, the construction of the spindle bearing production line is improving, the three-row independent pitch bearing of Hengrun transmission bearing products has been mass-produced, and the spindle bearing is in the stage of bench test certification.
The gear deep processing project with an annual output of 100,000 tons was changed to a new plant of Hengrun Ring Forging in June 2022, and as of the end of the reporting period, the production line has been able to produce rough forgings.
In contrast, the forging expansion project is not progressing smoothly and has already undergone a change. The implementation site of the project was changed from the existing production base of Hengrun Huan Forging on the south side of Zhuhuang Road, Zhutang Industrial Concentration Zone, Jiangyin City to the existing production base of Hengrun Huan Forging on the south side of Zhuhuang Road, Zhutang Industrial Concentration Zone, Jiangyin City, and the west of Jinchang Road and the south plot of Qingzhu Canal in Zhutang Town, Jiangyin City. Due to the change of the above-mentioned implementation location, the total investment of the project has increased from 538 million yuan to 648 million yuan, and the new investment will be invested by Hengrun's own funds, and the time for the project to reach the scheduled usable state will be adjusted to December 2023.
The project originally aimed to expand the production capacity of large-scale finishing forgings for wind power, improve the production capacity and product quality of Hengrun Co., Ltd. in large-scale wind power parts, and meet the needs of domestic and foreign customers for large-scale wind power parts, especially large-scale offshore wind power parts. As of April 19, the project has invested a total of 171 million yuan in raised funds, and the cumulative investment progress is 47.13%.
As for the reasons for the termination of fundraising projects, from the perspective of the industry, with the end of state subsidies, the wind power industry has entered the era of grid parity, and the market competition is becoming increasingly fierce. According to a report by Hua Chuang Securities, in the first half of 2023, Sany Heavy Industry (600031. SH), Envision Energy, Mingyang Intelligent (601615. SH), the winning price of onshore wind turbines has further decreased compared with 2022, and the price parity pressure of the industry has been gradually passed on to upstream machine manufacturers and parts suppliers.
From the perspective of the company, on the one hand, since 2022, the start-up of offshore wind power projects in mainland China has slowed down, industry competition has intensified, the company's main offshore wind power customer order demand has decreased, and the gross profit margin of offshore wind power flange products has declined compared with the peak period; on the other hand, due to technological innovation and cost reduction needs in recent years, large megawatt wind power equipment has moved towards lightweight, and wind turbines of more than 12MW are estimated to need wind power tower flanges with a diameter of more than 10 meters in the past, and wind power tower flanges with a diameter of about 8 meters can also be used for wind turbines of 12MW and above。 The company's existing production capacity of wind power flanges is enough to meet the phased needs of downstream customers.
Therefore, Hengrun shares said that it is difficult to achieve the expected return on investment by continuing to invest in the forging expansion project, and there may be a risk that the production capacity cannot be fully digested according to the original plan, so the project will be terminated and the remaining 240 million yuan of the three fund-raising projects will be permanently "replenished". (This article was first published in Titanium Media APP, author: Lu Wenyan)