Incident: The company released its 2022 annual report, achieving annual revenue of 1.3 billion yuan, an increase of 28.7% over the previous year; it achieved net profit of 150 million yuan, an increase of 22.2% over the previous year. Among them, Q4 achieved revenue of 310 million yuan in a single quarter, an increase of 40.6% over the previous year; Q4 achieved net profit of 26 million yuan in a single quarter, an increase of 19.4% over the previous year.

Revenue and profit are in line with expectations, and the consumer electronics business continues to soar. In 2022, the company's communication ceramic case revenue was 950 million yuan, an increase of 30.5% over the previous year, and the design and development of the 800G optical communication device case was completed, which is comparable to the technical level of overseas. The consumer electronics business achieved revenue of 200 million yuan, an increase of 64.7% over the previous year. Currently, the company's consumer electronics business includes sound meter crystal oscillator cases, 3D light sensor module cases, 5G communication terminal module cases, and aluminum nitride ceramic substrates. Among them, aluminum nitride film substrates and thin-thick film composite substrates have been delivered in batches.

In terms of profitability, the annual consolidated gross margin was about 27.4%, and the net interest rate was about 11.4%, which remained stable.

Set up a new business for precision ceramic components and localize key semiconductor components. In 2022, the company will develop precision ceramic components for key semiconductor equipment such as etchers, gluing projectors, lithographers, ion implanters, etc. The main products include ceramic rings, arms, vacuum chucks, heating plates, electrostatic chucks, etc. Among them, heating plates and electrostatic chucks are difficult, and domestic manufacturers have relied on imports for a long time. According to QYResearch data, global sales of electrostatic chucks were $1,714 million in 2021 and are expected to reach $2,412 million by 2028. The company has established a complete manufacturing process platform for precision ceramic parts, and ceramic heating plates have been applied in batches to key domestic semiconductor equipment. In 2022, the company's new precision ceramic component products achieved revenue of 8.169,900 yuan, and it is expected that domestic substitution will continue to be promoted in the future.

The restructuring process progressed in an orderly manner to improve third-generation semiconductor IDM. The company's restructuring process is progressing in an orderly manner. At present, relevant approvals have been obtained from the Science and Industry Bureau, the State Assets Administration Commission, and the Ministry of Finance to agree to the company's overall plan. According to performance commitment estimates, the predicted net profit of M&A assets for the 2022-2025 period was $37/39/42/46 million, respectively.

Among them, after raising capital, Bowei will further use it for 5G millimeter wave, Starlink communication, and 6G communication base station RF chips and devices, reaching a production capacity layout of 200,000 units per month. Meanwhile, the League of Nations has supplied GaN products to overseas customers such as Anpulon, and has signed supply agreements with customers such as BYD and Zhixuan for SiC power modules. In the future, it is expected that after the construction of the first phase of the production line is completed, the League of Nations will have integrated design, manufacturing, and sealing and testing capabilities for GaN and SiC.

Profit forecasts and investment recommendations. The 2023-2025 EPS is expected to be 1.11 yuan, 1.47 yuan, and 1.85 yuan respectively. The net profit returned to the mother will maintain a compound growth rate of 37.6% over the next three years, maintaining the “buy” rating.

Risk warning: R&D progress falls short of expectations, risk of failure to meet downstream customer demand; risk of trade friction; risk of increased industry competition; risk of failure to issue shares to purchase assets, etc.