Incident: The company released its 2022 annual report. It achieved annual revenue of 3.874 billion yuan, a decrease of 23.37% over the previous year; realized net profit of 327 million yuan, a decrease of 65.32% over the previous year; and achieved net profit of 60 million yuan after deducting non-return mother's net profit, a decrease of 92.28% over the previous year.
Fourth quarter performance improved month-on-month. Focus on the progress of the recovery in terminal demand:
The company achieved annual revenue of 3.874 billion yuan (YoY -23.37%), net profit of 327 million yuan (YoY -65.32%), gross profit margin of 17.97% (YOY-13.94PCT), and net interest rate of 8.76% (YOY-10.05pct). Demand in high-end application fields such as 5G applications, new energy vehicles, and photovoltaics is stable. The company's sales in these fields have increased year on year, but demand in consumer electronics markets such as home appliances and communications has plummeted in volume and price, and the company is in the construction period of major projects. As a result, the company's revenue and profit have declined significantly year-on-year. The company achieved revenue of 955 million yuan (YOY -13.17%, QoQ +19.27%) in a single quarter of 22Q4, achieved net profit of 14 million yuan (YoY -77.70%, reversal of loss from the previous month), gross profit margin of 11.78% (YOY-14.59pct, QoQ+1.60pct), and a net interest rate of 2.37% (YOY-3.63pct, qOQ+9.10pct). The 22Q4 company's revenue and profit both improved month-on-month. We estimate that it was mainly due to inventory removal and the recovery in short-term demand and operating rate in the fourth quarter. We believe that the passive component industry cycle represented by MLCC in 22Q3 is a clear sign that the passive component industry cycle has bottomed out. With downstream inventory replenishment and the gradual recovery of terminal demand, the company is expected to usher in continuous performance recovery in 2023.
High-end MLCC achieved a breakthrough, and the expansion of production promoted product structure upgrading:
According to the company announcement, by the end of 2022, the company was the only MLCC manufacturer in China to achieve full size 01005-2225 model coverage. The company is leading production technology in the MLCC field. In 2022, it achieved breakthroughs in high-end products such as some extreme, subextreme high capacity, and vehicle regulations. For example, the capacity of the 0805 MLCC was increased from 10 μF to 47 μF, and the 1206 specification capacity was increased from 47 μF to 100 μF (the first in China). The gap with leading international enterprises is gradually narrowing, providing a strong guarantee for the company's strategic transformation into high-end market fields such as automotive electronics, communications and new energy.
In 2022, the company successfully raised about 5 billion yuan, and plans to invest 4 billion yuan in the “High-end Capacitor Base Construction Project in Xianghe Industrial Park” and 1 billion yuan in the “Technology Improvement and Expansion Project of 28 billion chip resistors per month”. It is estimated that after the project reaches production, MLCC production capacity will increase by 45 billion units/month, reaching 65 billion units/month. At present, five billion MLCC production lines for industrial control and automotive electronics in the first phase of Xianghe have been fully produced, and the construction of the second phase of micro products and the third phase of high-end high-capacity projects is progressing steadily. Based on market changes and the actual situation of the project, the company optimized and adjusted the project implementation schedule and product structure. The third phase of the project, which mainly focuses on products in MLCC high-end market applications such as high capacity, vehicle regulations and industrial control, began operation in March 2023. As fixed production capacity is gradually released, the proportion of high-end products is expected to continue to rise.
The management mechanism has been significantly transformed, and multi-system reforms have been effectively implemented:
In March 2022, the company introduced two strategic shareholders holding more than 5% of the shares through fixed increases (National Advanced Manufacturing Industry Fund and Hengjian Group), thereby promoting the optimization of the corporate governance structure and speeding up the market-based reform process. In 2022, the company's many reforms achieved results: (1) R&D system: the first domestic company launched a 1206 100μF high-capacity MLCC. The company's high-end capacitor/resistor output increased 14%/7% year-on-year respectively, and the self-production rate of high-end materials increased by nearly 10 pct; (2) Supply chain system: the company established an intensive supply chain center to achieve the “three unification” of management, platforms, and information, increasing procurement decarbonization efforts, and the company's procurement costs dropped markedly; (3) marketing system: the total shipment volume of the top ten terminal customers increased by about 3 pct year-on-year, with the same increase in customer sales This represents an increase of over 90%; (4) Three system reforms: further simplification of the organizational structure, further optimization of personnel structure, and further differentiation of remuneration incentives.
Investment advice: We expect the company's revenue for 2023-2025 to be 4.734 billion yuan, 5.866 billion yuan, and 6.813 billion yuan respectively, and net profit of the mother is 635 million yuan, 922 million yuan, and 1,239 million yuan respectively, giving it a “buy-A” investment rating.
Risk warning: downstream demand fell short of expectations; production expansion fell short of expectations; technological breakthroughs fell short of expectations; market competition intensified.