The company's sales of MO source products and specialty gas products increased significantly in 2022, and annual performance increased high year-on-year. As a semiconductor materials platform-based enterprise, the company's business layout is multi-product and multi-field. In recent years, it has continuously promoted the construction of new production capacity, involving various products such as photoresists, precursors, and special gases. As project production capacity is gradually implemented and released in the next few years, the company's performance is expected to continue to grow. We expect the company's net profit to be 2.55, 2.80, and 325 million yuan respectively, and the corresponding EPS forecasts are 0.47, 0.51, and 0.60 yuan respectively. Referring to the company's historical valuation, we believe that 92 times PE in 2023 is the company's reasonable valuation level, corresponding to the target price of 43 yuan, maintaining the “buy” rating.

Net profit returned to the mother for the full year of 2022 increased 37.08% year over year. In 2022, the company achieved revenue of 1,581 million yuan, +60.62% year on year; achieved net profit of 187 million yuan, +37.08% year on year; net profit after deducting non-return to the mother was 126 million yuan, +78.39% year on year. The company's performance increased dramatically in 2022, mainly because MO sources and specialty gas products benefited from the company's increased market expansion, and sales increased dramatically. In particular, the technical strength and market share of hydrogen and fluorine specialty gas products increased rapidly. The company's overall gross profit margin in 2022 was 45.34%, up 1.92pcts from 43.42% the previous year. Among them, the gross profit margin of MO source products was 40.10%, down 0.12pct from the previous year; the gross profit margin of specialty gas products was 48.88%, up 3.87 pcts from the previous year. Q4 2022 achieved single-quarter revenue of 322 million yuan, +16.86% year on year, -21.83% month on month; net profit returned to the mother in the single quarter was -24 million yuan, -299.90% year on year, -136.62% month on month, mainly due to asset impairment losses of 32 million yuan in the Q4 quarter, which had a great impact on profits.

The four-fee rate decreased by 0.63 pct for the full year of 2022. In terms of cost rates, the company's sales rate for the full year of 2022 was 4.41%, down 0.25pct from the previous year; the management rate was 14.40%, down 0.13pct from the previous year; the financial rate was 1.21%, up 0.56 pct from the previous year; the R&D fee rate was 11.13%, down 0.81 pct from the previous year, and R&D expenses were 176 million yuan. The company actively promoted many important R&D projects such as MO sources, precursors, electronic specialties, photoresists, OLED materials, etc., to enhance core competitiveness; the total four fee rates were 31.14%, down from the previous year 0.63 pct In terms of cash flow, net cash flow from operating activities for the full year of 2022 was $229 million, and the net increase in cash and cash equivalents was -$09 million. The company operates relatively steadily, continues to maintain a positive cash flow from operating activities, and has a stable four-fee rate control.

Build a semiconductor materials platform-based company with a multi-product and multi-field business layout. (1) In the MO source sector, the company is a leading technology enterprise with independent intellectual property rights and the industrialized production of a full range of MO source products. It is also one of the world's major MO source manufacturers, and is in a leading position in the domestic market; (2) in the precursor sector, the company has further developed and industrialized various precursor materials based on the 02 special R&D experience, which has covered the main categories of silicon precursors/metal precursors, high-K precursors/low-K precursors required for wafer manufacturing, and has successfully introduced the country's leading logic chip and memory chip mass production process, with 7 precursor materials Through customer verification, it has stable supply capacity, and 4 silicon precursor products have been verified by international advanced process companies; (3) in the electronic specialty gas sector, hydrogen-based electronic specialty gases have risen to the forefront of the world in terms of technology, quality, production capacity and sales, and the competitiveness of fluorine-containing electronic specialty gases is constantly being strengthened; (4) in the photoresist and supporting materials sector, ArF photoresist has passed certification on downstream customer memory chip 50nm and logic chip 55nm technology node products. At the same time, many products are being certified by many customers. The company has leading production technology, strong R&D and innovation capabilities, and solid industrialization capabilities. It has broken the long-term technology monopoly situation abroad in many fields. In the long run, the company's new products are expected to become new growth points.

Continue to expand production capacity to strengthen market position and promote the construction of new product projects. Judging from the production capacity layout, by the end of 2022, the company's photolithography project and the 2000 tons/year nitrogen trifluoride expansion project had reached the intended state of use; the company expects the 45-ton semiconductor advanced process precursor product industrialization project with an annual output of 140 tons of high-purity phosphane, arsenic production expansion and arsenic technology improvement projects to reach the intended use state by November 30, 2023; the company expects Ulanqab's annual production of 7,200 tons of electronic-grade nitrogen trifluoride project to reach the intended state of use by the end of 2024. At the same time, after the completion of the photoresist project and the nitrous trifluoride production expansion project, the company plans to use 22 million yuan of the raised capital to invest in the “hexafluorobutadiene industrialization project” and the “R&D center upgrading project”. The company expects the 100 tons/year hexafluorobutadiene production plant project to build a 30-ton/year pilot plant in 2024 to open up the process and master the core technology; in 2025, the technology will be absorbed, the equipment will be upgraded, and the production capacity will be expanded to 50 tons/year; in 2026, the 50 tons/year plant will be expanded, with a total production capacity of 100 tons/year; the company expects the project to reach an average annual revenue of about 8.6 million yuan after delivery, the project's static payback period is 5 years, and the internal rate of return after income tax is about 28.80%. The company is actively building production capacity and advancing projects for new and old products. It is expected that it will continue to strengthen its market position and increase its market share.

Risk factors: Market competition intensifies; product price fluctuations; downstream demand shrinks; the company's production capacity construction progress falls short of expectations; the company's product verification and introduction progress falls short of expectations.

Profit forecasts, valuations and ratings: The company's sales of MO source products and specialty gas products increased significantly in 2022, and annual performance increased year-on-year. As a semiconductor materials platform-based enterprise, the company's business layout is multi-product and multi-field. In recent years, it has continuously promoted the construction of new production capacity, involving various products such as photoresists, precursors, and special gases. As project production capacity is gradually implemented and released in the next few years, the company's performance is expected to continue to grow. Taking into account the volume contribution of the precursor project after client-side verification is passed and the increase in industry supply after the special gas project is put into operation, we adjusted the company's 2023-2024 net profit forecasts to 255 million yuan and 280 million yuan respectively (the original forecast was 248 million yuan and 308 million yuan), and the forecast for additional 2025 was 325 million yuan, and the corresponding EPS forecasts were 0.47, 0.51, and 0.60 yuan respectively. Referring to the company's historical valuation, PE in the 30/45/60 quartile is 73/92/121 times respectively. We believe that 92 times PE in 2023 is the company's reasonable valuation level, corresponding to the target price of 43 yuan, maintaining the “buy” rating.