Net profit returned to the mother in '22 was 140 million yuan, maintaining the “increase in holdings” rating

The company's revenue for 22 was 7.129 billion yuan (YOY +5.16%), net profit of 140 million yuan (yoy +2.08%); 23Q1 revenue was 1,566 million yuan (yoy -9.23%, qoq -11.05%), and net profit of 27 million yuan (YOY +2.04%, qoq +5.64%). Considering that the gross profit margin and sales volume of some of the company's products were lower than our previous expectations, we lowered our profit expectations. In the end, we expected the company's EPS to be 0.76/1.16/1.58 yuan in 23-25 (previous value: 1.09/1.60/-). Comparable to the company's PE (2023E) average value was 13.4X. Considering that the company's copper strip foil production was stable and actively expanding the rolled copper foil, automotive battery tray and paint business, the company was given 16.0 times the PE valuation in 22, corresponding to the target price of 12.24 yuan (previous value: 16.77 yuan), and maintained the corresponding target price of 12.24 yuan (previous value: 16.77 yuan).”” Ratings.

Profit margins were under pressure in '22, and there was some recovery in 23Q1

The company's gross margin fell 0.52 pct to 3.98% (yoy -0.52%) in '22; the cost ratio for the period was 1.76% (yoy -0.05%). Although the management expenses rate, R&D expenses rate, and sales expenses ratio all increased slightly, mainly due to the increase in employee remuneration, export expenses, and R&D investment, the financial expense ratio declined a lot due to increased exchange earnings, offsetting the negative impact of the other three cost increases; as a result, the company's net interest rate declined narrower than gross margin, falling 0.10pct to 1.92%. The company's profitability recovered in 23Q1, and gross margins and net profit increased 1.25/0.17pct to 4.77% and 1.65% respectively.

Copper strip production has stabilized. The production and sales volume of copper plate strip by expanding the rolled copper foil, automotive battery tray and paint business in '22 was 10.97/110,000 tons, yoy-0.25/ +0.11%, respectively, and the production and sales volume of rolled copper foil reached 2898/2943 tons. The production and sales volume of copper strip in 23Q1 was 2,40/23,900 tons, yoy-9.06/9.29%, respectively, and the production and sales volume of rolled copper foil reached 891/911 tons. The company's products are widely used in the power industry (such as dry-type transformers, power cables, etc.), the electronic information industry (such as electronic appliances, composites, lead frames, etc.), the communications industry (such as RF cables, etc.), the home appliance industry (such as heat exchange equipment, etc.), etc. The company built a production capacity of 300,000 sets of automobile battery trays in '22, with production and sales of 3888/30,700 sets. It is not yet profitable (gross profit margin -8.2%). In addition, Harbin Shipbuilding Materials has set up a production base with an annual production capacity of 50,000 tons in Mingguang City, Anhui Province. The trial production plan has now passed on-site review. The main products are anti-corrosion/insulation materials.

The company is actively expanding the production capacity of high-precision copper alloy strip, and deploying lithium battery aluminum foil along with the acceleration of the digitization process and the popularization of new energy vehicles, as well as the transformation and upgrading of traditional industries such as electricity and communications, demand for high-end copper strip may usher in a new round of rapid growth. In line with new market demand, the company plans to invest in a high-precision copper alloy strip project with an annual output of 50,000 tons. The project construction period is expected to be 24 months; the terminal products are targeted at smart grids, semiconductor integrated circuits, 5G communications, and the needs of industries such as new energy vehicles, solar cells, supercapacitors, and lithium battery energy storage. Furthermore, the company plans to build a battery foil production of 25,000 tons per year, which is expected to be completed by the end of 23.

Risk warning: Risk of exchange rate fluctuations; increased industry competition or a decline in processing fees; inventory impairment losses that may be caused by fluctuations in raw material prices.