Brief comment on performance
On October 25, 2022, the company announced that in the first three quarters of 2022, the revenue was 2.378 billion yuan,-11.23% compared with the same period last year; the net profit was 61 million yuan,-72.06%; and the non-return net profit was 47 million yuan,-70.25%. 22Q3 realized revenue of 780 million yuan, year-on-year-19.58%, month-on-month 2.42%; realized return-9 million yuan, year-on-year-109.16%, month-on-month-122.65%; realized non-return net profit-9 million yuan, year-on-year-120.64%, month-on-month-129.04%.
Business analysis
The margin of demand weakens and profits are squeezed upstream and downstream. The company's third-quarter profit loss was mainly due to a sharp drop in gross profit margin. The company's 22Q3 single-quarter gross profit margin was 11.23%, down 4.81pct from a year earlier and 4.16pct from a month earlier, and the gross profit margin deteriorated to the worst level since going public. The main reason is that after the marginal deterioration of demand, the company has carried out a more radical price reduction strategy to ensure the production rate, and the decline in unit price is greater than that of raw materials in the upstream, resulting in a sharp decline in gross profit margin. It can be said that in the current difficult time of downward demand, the profit of copper clad laminate is squeezed by both upstream and downstream.
The accelerated clearing of the industry is beneficial to the leading manufacturers, waiting for the index to reverse. Historically, the overall downward cycle of the industry generally lasts for 6-12 months, and the downward cycle has been running for 12 months from 21Q3 to 22Q3. At present, we should pay close attention to the reversal opportunities of leading manufacturers. The reversal logic lies in: 1) the higher the degree of standardization of upstream raw materials, the higher the deterioration of demand, which will make the upstream price reduction greater than that of CCL at a certain point in time. Then copper clad laminate manufacturers will usher in a single gross margin reversal. 2) the overall pressure on the industry will enable smaller competitors to be cleared by the market and accelerate the arrival of the industry reversal, while the leading manufacturers will have a better chance to take the lead in reversing. Based on this, we believe that in order to seize the opportunity of the company's inflection point, we should wait for the company's gross profit margin index to reverse, and it is expected that there will be an improvement in 22Q4.
High-end CCL continues to break through, plus aluminum plastic film to open space. Although the company is currently under heavy pressure in the downward cycle, from the stable expense rate, we can see that the company still insists on high-end product research and development, in which high-frequency materials have been supplied in bulk by large customers, and IC board research and development continues. In addition to copper clad laminate, the company's "annual production of 36 million square meters of high-performance aluminum-plastic film project for lithium battery packaging" has been put into production in August this year and is expected to open room for growth.
Investment suggestion
Based on the fact that the deterioration of market demand has exceeded expectations, resulting in higher profitability in the previous period, we have lowered the company's 2022-2024 net profit forecast of 0.70 yuan (down 70%)\ 1.32 yuan (down 63%)\ 269 million yuan, corresponding to PE valuation of 43X\ 23X\ 11x, corresponding to EPS of 0.49\ 0.93\ 1.89 yuan per share, and continue to maintain the "buy" rating.
Risk hint
Demand is lower than expected; product prices are falling; production capacity is not as expected; competition is intensified.