In the first quarter of 2020, the company's revenue maintained a rapid growth trend, but due to increased expenses and a decrease in non-operating income, the company's net profit fell sharply in the first quarter. In 2020, the company's four “electromagnetic photomedicine” businesses entered a performance harvest period. The target materials business is expected to benefit from the boom in the semiconductor industry and become the main driving force for the company's performance, maintaining the company's “buy” rating.
The platinum group metals business increased the company's revenue significantly, and the performance of all major business segments increased. In the first quarter of 2020, the company achieved revenue of 2,224 billion yuan, an increase of 38.8% over the previous year. The sharp increase in revenue was mainly due to the company's large increase in business revenue such as platinum group metals, target materials, evaporators, and functional materials. In the first quarter of 2020, the company achieved net profit of 6.81 million yuan to the mother, a year-on-year decrease of 53.8%. After deduction, the net profit of the return mother lost 440,000 yuan, a year-on-year decrease of 115.37%, mainly due to the increase in the company's financial expenses and the decrease in non-operating income.
Expense increases dragged down the company's net profit in the first quarter. In the first quarter of 2020, the company's operating costs increased 41.2% year on year, which was higher than the increase in revenue. At the same time, the company's operating taxes and surcharges and financial expenses increased 99.6% and 308.9%, respectively, while non-revenue revenue decreased by about 35 million yuan over the same period last year, leading to a sharp decline in the company's profit in the first quarter.
The target materials business is strong, and the company's performance is expected to grow rapidly in 2020. In 2019, the company's target business developed by leaps and bounds, and the products were successfully transformed from 4-6-inch to 12-inch target products. A high-end metal target industrialization project was completed and put into operation, and key products such as copper targets, anodes, cobalt targets, etc. were supplied in large quantities. The products covered many high-end customers such as SMIC, Intel, TSMC, and Beifang Huachuang. With the development opportunities for domestically produced targets brought about by the future shift of the semiconductor industry chain to the country, the company's performance is expected to increase dramatically.
Risk factors: The epidemic affected the recovery of downstream demand, the prosperity of the semiconductor industry fell short of expectations, and the release of the company's target material production capacity fell short of expectations.
Investment advice: The company's performance in the first quarter of 2020 declined a lot due to increased expenses, but the company's platinum group metals and target materials business continued to grow. Currently, the company's four major electromagnetic-photomedicine business segments have entered a performance release period. In particular, the target materials business is expected to benefit from the boom in the semiconductor industry. Maintain the company's net profit forecast of 1.86/333/569 million yuan for 2020-2022, corresponding to the EPS forecast of 0.22/0.39/0.67 yuan/0.67 yuan/share for the 2020-2022 EPS. Considering that the company's current target material business profit release exceeded expectations, a PEG valuation of 1.1 times 2020 was given, corresponding to the target price of 18.1 yuan, and the company's “buy” rating was maintained.
