Incident: The company released its annual report for '22, achieving annual revenue of 3.874 billion yuan, or -23.37% year on year; net profit of Guimo was 327 million yuan, -65.32% year on year; net profit of non-Gwimo was 60 million yuan, -92.28% year on year.
The 22Q4 business situation improved month-on-month, and the full-year results were in line with expectations. On a quarterly basis, 22Q4 achieved revenue of 955 million yuan, -13.17% year on year, 19.23% month on month; return to mother's net profit was 14 million yuan, -77.70% year on year, 125.45% month on month; net profit after deducting non-return to the mother was -75 million yuan, -232.15% year on year and -13.64% month on month.
The volume and price of passive components (MLCCs, resistors, etc.) fell sharply in '22, and performance declined markedly throughout the year due to declining demand for terminals such as consumer electronics and the like. As demand for downstream terminals bottomed out in 22Q3 and the industrial chain was removed from storage, the 22Q4 industry cycle steadily rebounded, and the company's business situation improved.
The gross profit margin and period expenses ratio declined year-on-year. 1. Gross profit margin: The company's gross margin in '22 was 17.97%, -13.94 pct year-on-year. Among them, 22Q4 gross margin was 11.78%, -14.59 pct year-on-year, and 1.60 pct month-on-month.
The reasons for the decline in gross margin are: 1) demand for downstream terminals is low, the company's annual capacity utilization rate is insufficient, and cost amortization has increased; 2) Passive components have entered the warehousing cycle, prices of some conventional series products have declined, and product gross margin has declined. 2. Expenses: The expense rate for the 22-year company period was 11.99%, compared to -1.93 pct compared to the previous year. Among them, the sales, management, R&D, and finance expense ratios were 1.99%, 7.49%, 5.82%, and -3.31% respectively, compared to +0.40, +0.53, -0.01, and -2.85pct. Interest income from capital raised led to a decrease in financial expense ratios.
There is broad scope for the localization of passive components, and Fenghua is expected to continue to benefit. 1) Capacitors: According to data from the China Business Industry Research Institute, the global MLCC market reached 114.7 billion yuan in '21. The localization rate of MLCC is low. According to our estimates, Fenghua's global share in '22 was only about 1%, and there is plenty of room for replacement. The company achieved mass production and sales of automotive-grade MLCCs in '22. Furthermore, high-capacity products are also expected to make a breakthrough. 2) Resistors: According to data from the China Electronic Components Industry Association, the global resistor market was 21.6 billion yuan in 2020, mainly monopolized by Taiwan. The company's production capacity reached 65 billion units/month, second only to Guoguo, and will continue to be converted into revenue in the future.
Profit forecast: As downstream terminal demand gradually recovers and domestic production share increases, the company's net profit is expected to be 520, 926, and 1,275 billion yuan respectively in 23-25, maintaining the “buy” rating.
Risk warning: The recovery in downstream terminal demand falls short of expectations; the risk that the competitive pattern in the industry will worsen, etc.