Items:

The company recently disclosed that capacity utilization and product prices showed a downward trend in the first three quarters of 2022, capacity utilization began to recover gradually in the fourth quarter, and the overall inventory situation gradually returned to normal water level. market demand has recovered compared with the third quarter of 2022.

Comments:

The inflection point of the inventory cycle has been established and the recovery of the industry is expected. From the 22-year Q3 inventory data, MLCC representative companies have shown a decline in inventory, industry chain tracking shows that channel inventory has fallen back to a healthy level, MLCC began to pick up partially in the fourth quarter, some channels began to replenish inventory, mainstream product prices stopped falling, Q4 shipments of the company also increased slightly, the industry has been going to warehouse for more than 4 quarters, the industry inflection point signal resonates, and the company's own product line layout is extensive. New products such as car regulations and Gao Rong are launched in an orderly manner, and continue to be optimistic about the domestic replacement process of the company in the MLCC track. The company's resistance products are basically synchronized with the MLCC cycle, and Q4 has shown marginal improvement at the beginning. It is expected that the company's performance will return to the growth channel after 23 years of full recovery of downstream terminals.

The increase in the bottom of major shareholders shows confidence, and corporate governance continues to improve. Guangsheng Group, the major shareholder of the company, directly increased its holdings by 100 million yuan through the secondary market, and increased its holdings by 1.5 billion in the early stage of the stack, which demonstrated the confidence of state-owned assets in the bottom region. The company has disclosed the repurchase progress, and has repurchased 83.68 million by the end of 22nd. The repurchase stock pool will be used for employee stock ownership plan / equity incentive. With the landing of the employee incentive mechanism of state-owned enterprises, the corporate governance structure will be gradually improved, and the operating efficiency may be gradually improved.

The competition pattern of the industry is changing steadily, and Fenghua has a significant advantage as a domestic leader. At present, the supply of MLCC is mainly from Japan / South Korea / Taiwan, with CR8 accounting for about 90%. Among them, Japan and South Korea, represented by Murata and Samsung Motors, occupy the middle and high-end market, while Taiwan has a higher market share in the middle and low end. As Murata and other Japanese manufacturers began to withdraw from the middle and low-end market quarter by quarter from 16 years, Taiwan manufacturers such as Guoju accelerated industry integration to occupy the main share of the middle and low-end market. Although the comprehensive share of mainland manufacturers is relatively low, they increase code and expand production with the support of end customers to actively welcome the huge market of domestic substitution. At present, Fenghua has a large stock capacity, more capacity to be expanded, a wide range of product categories, and a good customer base. Middle and high-end cars, high capacity, industrial control and other products have also been introduced into customers one after another, and there is a chance to surpass Taiwan to enter the second echelon in a 3-5 year dimension.

Investment suggestion: Fenghua Hi-Tech is a domestic veteran MLCC manufacturer with a wide echelon of products. With the gradual release of production capacity, considering the company's own business adjustment and industry prosperity fluctuations, we expect that the EPS for 22-24 years will be 0.27 hip 0.61 hip 0.83 yuan respectively. With reference to the average valuation level of peer Sanhuan Group / Farah Electronics / Shunluo Electronics, and considering the recovery of the industry and the improvement of company management, a 23-year 30X valuation is given, corresponding to the target price of 18.3 yuan, maintaining a "strong push" rating.

Risk hint: the company's technology research and development is not as expected, production expansion is not as expected, and downstream demand is not as expected.