Incident: On March 17, the company announced its 2022 annual report. The company achieved revenue of 2,502 billion yuan in 2022, an increase of 4.12% over the same period last year; achieved net profit of 805 million yuan, a decrease of 2.68% over the previous year; and achieved net profit of 784 million yuan after deducting non-return to the mother, a decrease of 3.45% over the previous year.

Comment: Expanding product serialization around porcelain dicapacitors and porcelain technology. As the downstream boom picks up, performance is expected to improve. On the revenue side, the company achieved revenue of 2,502 billion yuan in 2022, an increase of 4.12% over the previous year. By business, the self-produced business achieved revenue of 1,373 billion yuan, an increase of 1.89% over the same period last year, mainly due to the increase in new product revenue from the company's expansion. In terms of agency business, annual revenue was 1,104 billion yuan, an increase of 5.80% over the previous year. This was mainly due to strong demand from the company's new energy customers, which hedged the sluggish demand of other industrial and consumer customers, driving the overall growth of the agency business. On the profit side, the company's net profit declined year-on-year, mainly due to (1) the company's gross margin falling 1.36 pct to 50.15% compared to the same period last year, mainly due to the relatively rapid growth rate of agency business revenue with higher cost levels and the increase in agency business costs; (2) the cost rate for the period increased 0.52pct to 11.28% from 10.76% in 2021. Among them, the R&D cost rate increased by 0.58pct to 3.94%, which is used to increase the number of new R&D projects and develop new product R&D work. The sales, management, and financial expenses rates increased by 0.14pct, -0.03pct, and -0.17pct to 3.04%, 4.09%, and 0.20% respectively. On the balance sheet, inventory increased by 61.95% compared to the end of the previous year, mainly to increase raw materials and inventory commodity reserves in response to changes in the external environment and to respond quickly to customer demand. According to the cash flow statement, net cash flow from operating activities decreased by 32.91% compared to the same period of the previous year, mainly due to the increase in cash paid for the purchase of goods due to the increase in inventory in that year.

Profit forecast and investment suggestions: Considering that it is a growth stock circuit and is expected to continue to expand the range based on the underlying core ceramic process, the company's EPS is expected to be 4.03, 5.14, and 6.25 yuan/share respectively from 23 to 25, giving a PE valuation of 30 times that of 23 years, corresponding to a reasonable value of 120.86 yuan/share, maintaining the “buy” rating.

Risk warning: low expectations for new product expansion, low expectations for equipment demand and delivery, policy adjustments, etc.