2022 results are in line with market expectations

Feikai Materials announced its 2022 results: revenue of 2,907 million yuan, an increase of 10.65% over the previous year; Guimu's net profit was 435 million yuan, an increase of 12.62% over the previous year, corresponding to a profit of 0.82 yuan per share, in line with market expectations. Non-net profit was 433 million yuan after deducting 2022, an increase of 35.2% over the previous year. The 4Q22 company achieved operating income of 667 million yuan, a decrease of 9.9% over the previous year, an increase of 12% over the previous year; it achieved net profit of 114 million yuan, a decrease of 1.4% over the previous year and an increase of 67.8% over the previous month.

In 2022, screen display material revenue fell 5.88% year on year to 1,223 million yuan, mainly due to the decline in the operating rate of domestic LCD panel manufacturers, which led to a year-on-year decline in LCD material revenue. In 2022, the operating income of its subsidiary Hecheng Display fell 13.8% year on year to 999 million yuan; in 2022, the gross margin of screen display materials fell 2.73ppt to 39.62% year on year, mainly due to a decline in LCD material profit margins. In 2022, Hecheng Display's operating profit margin fell 2.45ppt to 29.3% year on year. Affected by the downturn in the global semiconductor market cycle, semiconductor materials revenue increased 0.55% year-on-year to 556 million yuan in 2022, and gross margin fell 2.21ppt to 36.21% year-on-year; in 2022, the company's i-Line photoresist and 248nm photoresist anti-reflective layer materials were mass-produced by some customers. Benefiting from the rapid growth in demand for some pharmaceutical intermediate products, pharmaceutical intermediates revenue increased 54.26% year on year to 413 million yuan in 2022, and gross margin increased 2.28ppt to 51.76% year on year. Due to the improved operation of China's optical fiber and cable industry and the growth of non-fiber UV curing materials, the revenue of UV-curing materials increased 32.94% year-on-year to 663 million yuan in 2022.

Development trends

Demand for screen display materials and semiconductor materials is expected to gradually improve. As global LCD panel production capacity is further concentrated in China, LCD material import substitution continues to advance, and the operating rate of panel factories gradually increases in 2023, we expect the company's demand for screen display materials to gradually improve. As domestic wafer production capacity construction drives up demand for related semiconductor materials, and we believe that the global semiconductor industry sentiment is expected to gradually pick up, we expect the company's demand for semiconductor materials to gradually improve.

The construction of new projects continues to advance, and I am optimistic that the company will continue to grow. The company's annual production of 2,230 tons of halogenated compounds project, integrated circuit electronic packaging material base project, 6,000 tons of light-curing resin and surface treatment coatings project, 500 tons of photolithography supporting materials project, semiconductor manufacturing and advanced packaging supporting materials with an annual output of 30,000 tons, 10,000 tons of UV-curing optical fiber coating material expansion projects, and projects such as liquid crystal materials and OLED materials are progressing steadily. We expect that the launch of the new project will drive the company's continued growth.

Profit forecasting and valuation

Considering the decline in bromoacetonitrile sales and the price of screen display materials, we lowered our 2023 profit forecast by 13% to 520 million yuan, and introduced the 2024 profit forecast of 600 million yuan. The company's current stock price corresponds to the 2023/24 price-earnings ratio of 21.5/18.6x. Due to the downgrade of profit forecasts and the downturn in the industry valuation center, we lowered our target price by 22% to 28 yuan, corresponding to the 33% increase and the 2023/24 28.5/24.7x price-earnings ratio, and maintained an outperforming industry rating.

risks

The operating rate of LCD panels was lower than expected, and demand for semiconductor materials was lower than expected.