Event: In 2022, the company achieved revenue of 3,559 million yuan, a year-on-year decrease of 24.83%; Guimu's net profit was 801 million yuan, a year-on-year decrease of 16.15%.

The trade business affected overall performance. The profit margin level reached a record high. In 2022, the company achieved revenue of 3,559 million yuan, down 24.83% from the previous year; Guimu's net profit was 801 million yuan, down 16.15% from the previous year. The main reason for the decline in performance was affected by the external objective environment and the slowdown in downstream demand. The self-produced components and trade sectors all declined. The company's expenses rate for the period was 14.69%, an increase of 4.74 pct over the previous year, of which R&D expenses were 107 million yuan, the same as the same period in '21; management expenses were 220 million yuan, an increase of 17.02% over the previous year; and sales expenses were 163 million yuan, an increase of 10.14% over the previous year, mainly due to increased remuneration and increased depreciation and amortization of real estate transfers. The company's gross margin for 22 was 42.39%, an increase of 6.87 pct over the previous year. The profit margin level reached a record high due to changes in product structure.

On the balance sheet side, inventory was 1,238 billion yuan, an increase of 9.70% over the previous year. Among these, products increased 61.18% year-on-year during the same period, indicating that the company's inventory preparation schedule was full. On the cash flow side, net cash flow from operating activities was 926 million yuan, an increase of 55.75% over the previous year, and repayments continued to increase.

The boom in the specialty sector continues, and new categories may continue to break through

The self-produced components business achieved revenue of 1,476 billion yuan in '22, a year-on-year decrease of 3.10%; gross margin was 78.88%, an increase of 0.86 pct over the previous year, and the gross margin level reached a new high. Among them, the joint stock company achieved revenue of 1,255 million yuan (-7.77% YoY) and net profit of 651 million yuan (-5.53% YoY); Tianji Technology achieved revenue of 212 million yuan (+22.34% YoY) and net profit of 69.36 million yuan (+13.98% YoY), further increasing the scale of production and sales. We believe that the company continues to develop new categories of self-produced components, that downstream specialty demand continues to be high, and the domestic production business is expected to maintain steady growth in the future.

The performance of special ceramics materials continues to break through. It is expected to become a new growth point in performance in the future. Throughout 2022, the company's ceramic materials achieved revenue of 10.95 million yuan, an increase of 52.47% over the previous year; gross margin was 71.00%, down 3.44 pct from the previous year, and the new materials business continued to break through. Liya New Materials achieved revenue of 78.17 million yuan, a year-on-year decrease of 36.19%; net profit was 206.205 million yuan, a decrease of 49.77% over the previous year. Liya Chemical completed the construction of a liquid polycarbon-silane production line and established a stable source of orders with solid polycarbon-silane products, achieving revenue of 78.9 million yuan, an increase of 54.50% over the previous year; net profit of 18.19 million yuan increased sharply, an increase of 286.92% over the previous year. As one of the few domestic enterprises with large-scale production capacity for ceramic materials, Liya Group has broken through key technologies for preparing special high-performance new materials in various industries and has pioneering advantages in terms of technology, products, scale, and customer reserves. We believe that the new materials business is expected to become a new growth point for the company.

The trade sector is actively expanding new categories and emerging markets, and is expected to grow again in the future. The products covered by the trade sector mainly include high-capacity ceramic capacitors, tantalum electrolytic capacitors, metal film capacitors, aluminum electrolytic capacitors, inductors, duplexers, filters, etc. Downstream mainly focuses on communication products, digital products, automotive electronics, security, industrial electronics and other fields. In 2022, due to weak consumer electronics, downstream customers' inventory absorption capacity was limited, and the overall performance of the international trade sector declined, achieving revenue of 1,936 billion yuan, a year-on-year decrease of 36.76%. Through a full range of services such as training, testing, and technical support, the company highlights differentiated competitive advantages. It is expected that 2023 will gradually utilize the strategic layout of the Southeast Asian market to create benefits and promote the company's international trade process.

Profit prediction and rating: The company's self-produced component business continues to expand new categories, demand in the downstream specialty industry remains high, and self-production business may show restorative growth. Furthermore, the new materials business continues to break through. In addition, the new materials business continues to break through. In the future, with mass production of new models, it is expected to become a core growth point. Since the fundamental growth rate declined a lot in '22, due to prudential principles, we lowered revenue for 23-24 from 70.86/85.42 to 4,273/5.101 billion yuan, and 6.034 billion yuan in '25; Guimu's net profit was lowered from 1,606/2,054 million yuan to 1,015/1,256 million yuan, and the corresponding EPS was 2.21/2.73/333 yuan, corresponding to PE18.69/15.10/12.41X, maintaining the “buy” rating.

Risk warning: risk of price reduction for military products; military market demand falls short of expectations; industrialization and orders of ceramic materials fall short of expectations.