Key points of investment

Incident content: On the evening of March 30, the company disclosed its 2022 annual report. In 2022, the company achieved operating income of 3,219 million yuan, an increase of 75.16% over the previous year; achieved net profit attributable to the parent company of 403 million, an increase of 171.93% over the previous year; and achieved net profit attributable to the parent company after deduction of 336 million yuan, an increase of 142.52% over the previous year. At the same time, the company announced a profit distribution plan for 2022, and plans to distribute a cash dividend of 1.0 yuan (tax included) for every 10 shares.

Benefiting from the boom in downstream demand and the continuous expansion of the company's production capacity, the company's performance in 2022 achieved rapid year-on-year growth, in line with market expectations. 1) The company's revenue increased 75.16% year-on-year in '22. Divided into the downstream application industry, the demand boom in the automotive and photovoltaic industries was the main reason for the sharp increase in revenue. In 2022, the company's four downstream application fields, automobiles, photovoltaics, consumer electronics, and security, achieved revenue growth of 315.4%, 88.66%, -7.71%, and -12.51%, respectively. Demand in the automotive and photovoltaic application fields grew rapidly; at the same time, judging from the revenue composition, photovoltaics and automobiles accounted for 54.84% and 24.73% respectively, contributing to the vast majority of the company's revenue; 2) In line with the explosion of the company's downstream demand, the company actively promoted production capacity expansion; in 2022, in Guangdong, Jiangsu, Sichuan, Chongqing, Hunan, etc. Production base In addition to the layout, the company added the construction of bases in Hanshan in Anhui, Xinfeng in Jiangxi, and Zhaoqing. 3) The company's net profit increased 171.93% year-on-year in '22, exceeding the revenue growth rate during the same period. The main reason may be that the company's costs and expenses were well controlled and non-financial profit and loss increased significantly. First, it is estimated that, benefiting from the decline in raw material prices and product structure adjustments in the current period, the company's gross profit margin in '22 was 21.72%, up about 2.6 percentage points from 19.13% in the same period last year; secondly, it is expected that the company will benefit from an increase in scale. The company's three-year rate was 7.6%, down about 0.7 percentage points from 8.3% in the same period last year; third, it is expected that the company's non-financial profit and loss in '22 will reach 66.6 million yuan, far higher than the previous year's non-financial profit and loss of 9.49 million yuan.

Looking at 22Q4, it is expected that, benefiting from the release of production capacity at the Anhui and Jiangxi bases, combined with good downstream demand, the company's quarterly output value will increase dramatically, and profitability will increase markedly year-on-year and month-on-month. The 22Q4 company achieved quarterly revenue of 1,138 million yuan, an increase of 42.1% over the 22Q3 quarter revenue of 801 million yuan, a year-on-year increase of 92.48% over the 21Q4 quarter revenue of 591 million yuan. The company's output value increased sharply in the fourth quarter of '22. It is expected to be related to the company's announcement in August '22 of the construction of new Anhui Hanshan and Jiangxi Xinfeng base projects, and agreement on transition terms and the release of production capacity in the fourth quarter.

The resonance of the company's supply and demand in 2023 may drive rapid growth in performance; at the same time, the accelerated construction of overseas bases is expected to further strengthen cooperation with overseas customers and enhance overseas supply support capabilities. 1) From the supply side of production capacity, new domestic projects have been launched one after another, and the release of the company's production capacity in 2023 is expected to be quite adequate. At the same time, the acceleration of overseas plant construction in 2023 will further enhance the stickiness of cooperation with core overseas customers such as SE and Enphase, and expand new overseas customers. Specifically, the Anhui Hanshan base and the Jiangxi Xinfeng base are under construction, and it is expected that additional production capacity will continue to be released in 2023; the first phase of the Chongqing Tongliang precision structural parts and equipment R&D production project is expected to be officially put into operation in January 2023, while the second phase of the project will soon begin construction and is expected to be put into operation before the end of 2023; although the Zhaoqing project is expected to be put into operation before the end of 2024, it has been agreed that the first stage will be launched by leasing a plant as a temporary transition production base; the bases in North America, Mexico and Hungary in Europe will speed up deployment in response to customer demand. 2) Looking at the downstream demand side of photovoltaic energy storage, new energy vehicles, etc., first, the European and American PV market is expected to remain strong in 2023. The latest 202Q4 US solar market insight report released by the American Solar Energy Industry Association SEIA shows that the average annual growth of new photovoltaic installations in the US will exceed 21% from 2023. The European Photovoltaic Industry Association expects the installed capacity of photovoltaic systems installed in the EU in 2023 to reach 53.6 GW, an increase of about 29%; secondly, domestic demand for new energy vehicles is expected to remain at a high level, according to the China Automobile Manufacturers Association It is predicted that China's new energy vehicles will continue to grow rapidly in 2023, and sales are expected to exceed 9 million units, an increase of about 30%.

Investment advice: The company's performance in 2022 was generally in line with expectations. Looking ahead to 2023, the company mainly uses downstream optical storage, new energy vehicles and other industries, and we have observed a clear release of the company's new production capacity since 22Q4. We tend to think that, driven by the resonance of supply and demand, the company's performance can be expected to continue to grow sharply. At the same time, along with the acceleration of the company's overseas base construction expectations, it is expected that the company's cooperation with core overseas customers will be significantly strengthened and the foundation for the company's performance to maintain relatively rapid growth in the future. Considering the rapid release of new production capacity and the expected significant increase in the company's average monthly output value in 2023, we have raised our earnings forecast for 23-24. We expect earnings per share from 2023 to 2025 to $1.92, 2.91, and 4.03 respectively, maintaining Buy-B's investment rating.

Risk warning: Risk of high customer concentration, risk of falling gross margin of main business, risk of fluctuations in raw material prices, risk of economic loss due to failure to fulfill agreements in a timely manner, risk of large accounts receivable and inventory size, risk of exchange rate fluctuations, etc.