Incident: The company released its 2023 quarterly report, achieving revenue of 329 million yuan, an increase of 12.6% over the previous year and an increase of 7.4% over the previous month; it achieved net profit of 36 million yuan, an increase of 1.39% over the previous year and an increase of 39% over the previous month.

Revenue and profit improved month-on-month, and gross margin remained stable. Q1's revenue in 2023 was the same as Guimu's net profit, and both improved month-on-month. Among them, Q1 achieved net profit of 36 million yuan in a single quarter, an increase of 1.39% over the previous year and an increase of 39% over the previous month. In terms of profitability, the company's gross margin in the first quarter was about 27.32%, up 0.87 percentage points from the previous quarter, and the net interest rate was about 10.99%, up 2.5 percentage points from the previous quarter. In terms of cost rate, the sales/management/R&D/finance cost ratio was 0.62%/3.4%/10.85%/0.43%. Among them, R&D expenses decreased by 8.41% year on year, and the rest of the cost rate remained stable.

Domestic optical modules with ceramic housings lead the way, and consumer electronics have fully benefited from the recovery. In 2022, the company's communications ceramic shell revenue was 950 million yuan, an increase of 30.5% over the previous year. In the field of optical communication, the company covers optical communication ceramic devices with transmission rates from 2.5G to 800G. The products are widely used in optical fiber backbone networks, metropolitan area networks, broadband access, data centers, etc. At present, the company has completed the design and development of 800G optical communication device cases, which is comparable to the technical level of overseas. In the consumer electronics business, the company achieved revenue of 200 million yuan in 2022, an increase of 64.7% over the previous year. Currently, the company's products include sound meter crystal oscillator cases, 3D light sensor module cases, 5G communication terminal module cases, and aluminum nitride ceramic substrates. Filter products cover SAW, BAW and other devices. The main sizes include 0806, 1109, 1411, 1612, 1814, 2016, etc., covering a wide range of products.

Semiconductor precision ceramic components have achieved breakthroughs to help localize key equipment components. In 2022, the company developed precision ceramic components for key semiconductor equipment such as etchers, gluing projectors, lithographers, and ion implanters. The main products include ceramic rings, arms, vacuum chucks, heating plates, electrostatic chucks, etc.

Among them, advanced functional ceramics such as ceramic heating plates and electrostatic chucks are difficult to manufacture, have certain technical barriers and thresholds, and domestic manufacturers have relied on imports for a long time. According to QYResearch, 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.

Profit forecasts and investment recommendations. The 2023-2025 EPS is expected to be 1.07 yuan, 1.47 yuan, and 1.90 yuan respectively. The net profit returned to the mother will maintain a compound growth rate of 38.7% over the next three years, maintaining the “buy” rating.

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