Revenue fell 23% year over year in 2022, and profitability was under pressure. The company's revenue in 2022 was 338 million yuan (YoY -22.62%), net profit of 19.41 million yuan (YoY -85.22%), after deducting net profit of 17.56 million yuan (YoY -86.12%). Annual gross margin decreased by 8.8pct to 38.01%, of which 4Q22 gross margin was 38.44% (YOY +4.8pct, QoQ +4.7pct); R&D expenses increased 32.72% to 1999 million yuan, R&D fees increased 2.5pct to 5.91%, management fees increased 4.3pct to 11.25%, sales rates increased slightly to 1.55%, asset impairment losses fell 29.66 million yuan, net interest rate decreased by 21.66% to 10.12%.

First-quarter revenue declined month-on-month, with losses for the third consecutive quarter. The company's 1Q23 revenue was 77.39 million yuan (YoY -19.15%, QoQ -6.15%), net profit of the mother was 7.1 million yuan (YoY -134.79%, QoQ -43.13%), net profit of the non-return mother was 7.47 million yuan (YoY -137.12%, QoQ -34.02%). The gross margin for 1Q23 was 29.08% (YoY -14.6pct, QoQ -9.4pct), and the rate for the period increased 10.3 pct year-on-year.

In 2022, revenue from semiconductor power chips and devices increased, and gross margin increased. The company's products cover semiconductor wafers, abrasives, chemical chips, polishing sheets, semiconductor power chips and devices. In 2022, semiconductor monocrystalline silicon wafers revenue was 154 million yuan (YoY -45.17%), accounting for 46%, gross profit margin of 36.08% (-13.5pct); semiconductor power chips and devices revenue of 109 million yuan (YoY +75.18%), accounting for 32%, with a gross profit margin of 44.86% (+7.1pct), mainly due to Jiangsu's acquisition of Gao Zixin in August 2021 Consolidation; semiconductor monocrystalline silicon rod revenue 66 million yuan (YoY -21.89%), accounting for 20%, gross profit margin 27.09% (-16.1pct).

The decrease in gross margin of silicon wafers and silicon rods is mainly due to rising procurement costs for raw and auxiliary materials.

Some 6-inch polishing pads have passed customer certification, and additional capital will be raised to expand production of 6-inch polishing pads. On December 10, 2022, the company announced a plan for the non-public offering of A-shares. It plans to raise no more than 500 million yuan, of which about 400 million yuan will be used for a monocrystalline silicon polishing sheet project with an annual output of 2.5 million 6-inch monocrystalline silicon wafers for high-end power devices. The project is dominated by reblending a series of monocrystalline silicon wafer products. Construction is carried out on existing land and plant of CITIC New Materials. It can effectively share fixed costs by expanding production scale. Some of the company's 6-inch monocrystalline silicon polishing pads have been certified by customers such as Zhejiang Jingrui Electronic Technology Co., Ltd., Fuzhou Fushun Microelectronics Co., Ltd., and Zhejiang Xindong Technology Co., Ltd., and small-batch trial production is planned.

Investment advice: Short-term performance is under pressure to maintain the “increase holdings” rating

We expect the company's net profit to be 0.26/0.49/067 million yuan in 2023-2025, with a year-on-year growth rate of +33.9/+88.0/ +37.0%; EPS is 0.26/0.48/0.66 yuan, and PE corresponding to the stock price on April 28, 2023 is 160/85/62x, respectively. Short-term performance is under pressure, waiting for demand and gross margin to recover, and maintain the “increase in holdings” rating.

Risk warning: demand falls short of expectations, fundraising project progress falls short of expectations, customer introduction falls short of expectations