Incident: On April 17, 2023, Huitian Xincai released its 2022 annual report: achieved operating income of 3.714 billion yuan, +25.71% year on year; achieved net profit attributable to shareholders of listed companies of 292 million yuan, +28.29% year on year; the diluted average return on net assets was 10.72%, up 0.39 percentage points from the previous year. The gross profit margin was 23.49%, up 1.03 percentage points from the previous year; the net sales margin was 7.82%, up 0.21 percentage points from the previous year.

Among them, Q4 2022 achieved revenue of 830 million yuan, +18.94% year on year and -15.59% month on month; realized net profit of 31 million yuan, +224.85% year on year, -59.84% month on month; the weighted average return on net assets was 1.19%, up 0.75 percentage points from the previous year and down 2.00 percentage points from the previous year. The gross profit margin on sales was 24.19%, up 8.45 percentage points from the previous year and down 0.15 percentage points from the previous year; the net sales margin was 3.68%, up 2.87 percentage points from the previous year and down 4.23 percentage points from the previous month.

Comment:

Q4 performance was +224.85% year on year, raw material prices fell, and the performance of the silicone profit repair company grew rapidly in 2022, achieving operating income of 3.714 billion yuan, +25.71% year on year; net profit attributable to shareholders of listed companies was 292 million yuan, +28.29% year on year. The company's Q4 net profit was +224.85% compared to the previous year, mainly due to the gradual release of new production capacity for silicone raw materials, the year-on-year decline in raw material prices, and the restoration of the gross margin of the company's core product, silicone.

By sector, renewable energy achieved revenue of 2,125 billion yuan in 2022, +35.31% year on year; gross margin was 21.76%, +1.34 percentage points year on year. Electronic appliances achieved revenue of 575 million yuan, +25.08% year on year; gross margin was 32.82%, +2.23 percentage points year on year. Transportation equipment manufacturing and maintenance achieved revenue of 566 million yuan, +14.52% year on year; gross margin was 27.22%, -5.06 percentage points year on year. By product, silicone achieved revenue of 1,935 billion yuan in 2022, +22.01% year on year; gross margin was 24.85%, -0.47 percentage points year on year. Polyurethane rubber achieved revenue of 586 million yuan, +40.70% year on year; gross margin was 21.93%, -1.17 percentage points year on year. Non-rubber products achieved revenue of 917 million yuan, +33.07% year on year; gross margin was 17.38%, +5.52 percentage points year on year.

The net cash flow generated by the company's operating activities in 2022 reached 134 million yuan, +8.95% over the same period last year, mainly due to the increase in cash received from the sale of goods and the provision of labor services. In terms of the cost rate for the period, the company's sales/management/finance/R&D expenses ratio in 2022 reached 4.86%/9.90%/-0.12%/4.71% respectively, up to +0.13/+0.52/-0.67/+0.08 percentage points over the previous year. Expenses for the period were relatively stable.

The development of photovoltaic silica gel is steadily increasing, continuously consolidating the basic market

In the field of photovoltaic new energy, the company supplied a higher share of supplies to leading customers in industries such as Longji, Tianhe, Jingao, Jingke, Artus, and Dongfang Risheng, achieving a year-on-year increase in sales revenue of 34.81%; in the solar cell membrane business, product profitability also increased, and sales revenue increased 36.23% year-on-year. Meanwhile, the newly invested PV silicone sealant production capacity of 30,000 tons/year was completed and put into operation in March of this year, and the solar cell membrane project with an annual output of 36 million square meters is expected to be officially put into operation in the first half of this year. The company has a steady profit from photovoltaic silica gel and continues to expand its PV product layout.

The field of electronic adhesives continues to advance, and long-term sustainable profits

The high-end electronic adhesive market is monopolized by importers. The localization rate is less than 50%, and there is broad scope for import substitution. The company continues to expand customers in the field of high-end electronic adhesives, successfully established cooperation with key microelectronics companies such as Xiaomi, ZTE, and Honor, and exceeded sales targets. The company currently has 17,000 tons of high-end electronic adhesive. The Guangzhou Huitian Electronic New Materials Expansion Project is expected to be completed and put into operation in July this year, and the high-end electronic adhesive production capacity will increase by 39,300 tons. We believe that the good progress of the Guangzhou Huitian Electronic Adhesive Project is conducive to improving the company's medium- to long-term performance.

Deeply cultivate adhesives for automotive engineering, lithium battery anode adhesives open up new space

The company has established long-term partnerships with mainstream manufacturers such as China FAW, Ford, Changan, Nissan, Yutong, and Chery. At the same time, it is focusing on new energy vehicles and new car builders, and its market share continues to increase. At the same time, in the field of lithium battery applications, many of the company's adhesive products, such as heat-conducting adhesives, structural adhesives, hot melt adhesives, etc., have been applied maturely to leading customers in the lithium battery industry, such as Ningde Times, BYD, and Yiwei Lithium Energy. The newly invested two-component polyurethane adhesive project for lithium batteries with an annual output of about 10,000 tons and the lithium battery anode adhesive project with an annual output of about 15,000 tons is expected to be completed and put into operation in the first half of this year. As the 510,000 ton PAA project and the 75,000 ton lithium battery new materials project proceed in an orderly manner, lithium battery anode adhesive is expected to open up new space for the company to grow.

Profit forecast and investment rating: The company is a leading domestic adhesive company, focusing on high-value circuits for photovoltaics, new energy vehicles and communication electronics. The company is rich in projects under construction, has plenty of room for medium- to long-term growth, and is expected to increase its performance rapidly. The company's net profit for 2023/2024/2025 is estimated to be 3888/510/627 million yuan respectively. The corresponding PE is 16.74, 12.72, and 10.35 times, covered for the first time, and given a “buy” rating.

Risk warning: The introduction of new products falls short of expectations, the commissioning progress of new construction projects falls short of expectations, the risk of fluctuating upstream raw material prices, the risk of fluctuations in product prices, the risk of macroeconomic fluctuations, worsening market competition patterns, environmental protection policies and production safety risks.