The rise in unit prices of major products has driven a slight increase in revenue against the trend. As production capacity for fund-raising projects was released one after another in the second half of 2022 and the gap between supply and demand for ultra-thin PP substrates continues to widen, revenue growth in 2023 is expected to remain steady, and the growth rate in the second half of the year may be better than in the first half of the year. In terms of profitability, the increase in gross margin was compounded by an increase in exchange profit and loss, and a significant increase in profitability. With the continuous adjustment of the capacitor product structure in 2023, compounded by the widening gap between supply and demand, opening up room for price increases for ultra-thin PP films, etc., we anticipate that there is room for further improvement in overall gross margin, and profitability is expected to increase further. Once again, as a manufacturer with deep technical reserves, leading base film production capacity, and an integrated industrial chain, the company's future growth momentum is mainly due to the release of film capacitor production capacity and the rise in the price of ultra-thin PP film due to the widening gap between supply and demand. Maintain the company's “buy” rating.
Business Overview: The company released its 2022 annual report. During the reporting period, it achieved revenue of 1.04 billion yuan, an increase of 4.04%; realized net profit of 74 million yuan, an increase of 45.41% over the previous year, equivalent to EPS of 0.13 yuan; achieved non-net profit of 65 million yuan, an increase of 43.58% over the previous year. In the fourth quarter, we achieved revenue of 258 million yuan, an increase of 0.33% over the previous year; realized net profit of 21 million yuan, an increase of 21.22% over the previous year; and achieved non-net profit of 19 million yuan, an increase of 42.87% over the previous year. At the same time, the company disclosed its operating target for 2023 and plans to achieve sales revenue of 1.15 billion yuan, an increase of 10.53% over the previous year.
The rise in unit prices of major products has driven the company's revenue to buck the trend and grow slightly. The sales volume of the company's main products declined significantly. Among them, sales of electronic grade thin film materials were about 14,000 tons, a year-on-year decrease of 19.5%, and sales of 46.4627 million capacitors, a year-on-year decrease of 17.2%. In this context, the company's revenue increased slightly, mainly due to:
1) The imbalance between supply and demand for ultra-thin PP film is compounded by structural adjustments, and the unit price of electronic grade film materials has risen sharply: in the past two years, demand has been driven by new conditions, and limited by equipment, production capacity expansion has been limited, and the price of ultra-thin PP film has risen markedly.
In order to meet market demand, the company increased the proportion of ultra-thin PP film production (increasing the proportion of ultra-thin PP film production usually causes a corresponding decrease in production and sales), which led to a sharp rise in the unit price of electronic-grade film materials — according to our estimates, in 2022, the average unit price of the company's electronic-grade film materials was about 34,000 yuan/ton, an increase of about 44.52% over the previous year; 2) The capacitor structure was adjusted, and the unit price increased significantly: over the past two years, the company has continued to adjust the capacitor structure, continuously increase the proportion of capacitors used in the new energy field, and the results are obvious - according to our estimates, during the reporting period, the company The average unit price of capacitors increased to 8.8 yuan/unit, an increase of 23.91% over the previous year. Looking ahead to 2023, with the continuous release of production capacity for fund-raising projects and the widening gap between supply and demand for ultra-thin PP substrates, etc., revenue growth is expected to remain steady throughout the year, and the growth rate in the second half of the year may be better than in the first half of the year.
The increase in gross margin was compounded by the increase in exchange profit and loss, and the profitability increased significantly. In 2022, due to the increase in sales scale and the increase in managers' remuneration, the company's management expenses increased significantly (YoY +39.15%), and asset impairment losses due to loss in inventory prices and contract performance costs increased significantly. In this context, the company's profitability has increased significantly, mainly due to an increase in gross margin combined with an increase in exchange profit and loss: 1) As mentioned earlier, the imbalance between supply and demand for ultra-thin PP film has led to a sharp rise in the unit price of electronic grade film materials, superimposed structural adjustments, a significant increase in the unit price of capacitors, and a significant increase in the unit price of major products has led to a significant increase in overall gross margin; 2) During the reporting period, benefiting from the rise in the US dollar exchange rate, the company's exchange earnings have increased. Looking ahead to 2023, with the continuous adjustment of the capacitor product structure, compounding the gap between supply and demand and opening up room for price increases for ultra-thin PP films, etc., we expect there is room for further improvement in overall gross margin, and profitability is also expected to increase further.
Risk factors: macroeconomic fluctuations or impact operations; increased competition or a decline in profitability; large fluctuations in raw materials affect profitability; penetration rate of PP composite copper foil falls short of expectations; there is a risk of inventory impairment.
Profit Forecast, Valuation and Rating: Once again, the company's future growth engine is mainly due to the release of production capacity and the widening gap between supply and demand, opening up room for price increases for ultra-thin PP films: 1) After the equity structure was adjusted in 2020, the company has successively expanded or built a number of new thin film capacitor projects. Currently, these projects have entered or are about to enter the harvest period; 2) Currently, there is a tight balance between supply and demand for ultra-thin PP film. As the industrialization of PP composite copper foil continues to advance, etc., we expect the gap between supply and demand to widen further in the future. As a manufacturer with the leading production capacity of ultra-thin PP film, it is expected that the company will take the lead in benefiting. Maintain the company's net profit forecast for 2023-2024 and add $119 million, 166 million yuan, and 192 million yuan, respectively. The corresponding year-on-year growth rates were 60.8%, 39.4%, and 15.6%, respectively, and the corresponding EPS forecast was 0.21, 0.29, and 0.34 yuan. Maintain the company's target market value of 5 billion yuan in 2023, corresponding to the target price of 8.9 yuan, and maintain the “buy” rating.