Incidents:
The company released its 2022 annual report. During the reporting period, the company achieved operating income of 2,466 million yuan, an increase of 8.57% over the previous year; achieved net profit of 48 million yuan, an increase of 117.83% over the previous year; and realized net profit of 34 million yuan after deducting non-return mother's net profit, an increase of 520.23% over the previous year. Among them, 2022Q4 achieved operating income of 837 million yuan, -1.59%/53.95% of the previous year/month; achieved net profit of 82 million yuan, 313.49%/527.93% of the previous year/month; and achieved net profit of 71 million yuan after deducting non-return to the mother, 507.66%/444.63% year-on-year.
Adhesives remain strong, and profits are under pressure in the short term. During the reporting period, the company's adhesive business achieved revenue of 1.58 billion yuan, a year-on-year decrease of 0.79%, accounting for 64.06% of revenue. Among them, epoxy products achieved revenue of 976 million yuan, a year-on-year decrease of 5.06%. The proportion was still as high as 39.58%. The adhesive business declined slightly, which is expected to be mainly affected by weak demand for downstream wind power installations. The company has successfully applied 11 100-meter blades and developed overseas blade customer LM Windpower, which is expected to speed up the import substitution process and open up a diversified business pattern. Affected by factors such as the international situation and environmental protection policies, prices of major raw materials such as crude oil fluctuated at a high level. The gross margin of electronic materials/composites was 56.04%/1.69%, down 4.35/1.34pct from the previous year. Looking ahead, as raw material prices gradually fall, compounded by a recovery in downstream demand, the company's profitability is expected to increase significantly.
Seize the “14th Five-Year Plan” opportunity and boost the military industry business. During the reporting period, the company's products in the military electronic technology sector were dominated by its wholly-owned subsidiaries Bicontrol Technology and Liyuan Xingda. Among them, filters and filter components achieved revenue of 138 million yuan, an increase of 2.71% over the previous year, and the power filter sector achieved revenue of 44 million yuan, an increase of 107.5% over the previous year. In an environment where the “14th Five-Year Plan” wave of weapons and equipment capacity building has entered a new stage, the company will further integrate technology research and development and market channel resources in the fields of microwave electronic systems, electromagnetic compatibility, power modules, tantalum capacitors, ceramic capacitors (MLCC), etc., to build a first-class domestic “new materials+military” industry research center and industrialization base.
Profit forecast: Relying on the two-wheel drive of new materials+military business, the company is expected to achieve diversified growth. Combined with a marked decline in raw material costs in 23 years, shipments and profits are expected to increase further. We expect the company to achieve net profit of 276/3.65/ 458 million yuan in 2023-2025, corresponding to PE 15/11/9 times. PE was given a valuation of 20 times the profit of 2023, with a target price of 18.1 yuan. It was covered for the first time and given a “buy” rating.
Risk warning: PV installations fall short of expectations, profit forecasts and valuation judgments fall short of expectations