Event: the company released a quarterly report that 1Q23 revenue was 76.15 million yuan, down 21% from the same period last year. Affected by the impairment of assets (a total of 18.79 million yuan), the net profit per quarter was-21.77 million yuan, and the loss increased compared with the fourth quarter.
The key to J material, can be stripped of copper domestic replacement urgent: according to our supply chain research, the current market space of copper can be close to 4 billion yuan, mainly monopolized by Japanese merchants Mitsui. Its main application scenarios include 1) high-end BT carrier board of mobile phone SoC; 2) class carrier board of high-end models such as Apple Inc / Samsung / Huawei; 3) it is also expected to be used in ABF carrier board / similar ABF carrier board in the future. The company disclosed that the strippable copper is currently undergoing customer certification, and the sample delivery quality is stable. A wide-width product has passed the physical property and process tests of some carrier plate manufacturers, and passed the first round verification of some terminals. At present, Japan, the United States and the Netherlands have gradually intensified their restrictions on domestic semiconductors, and copper can be stripped as an important upstream raw material at the closed test end, which is expected to increase rapidly under the urgent demand of domestic substitution in the future.
Business coordination, good competitiveness of FCCL products; strong visibility of thin film resistors to the ground:
PI and copper foil are important upstream raw materials of FCCL, which together account for 70-80% of the total cost. The core advantage of the company in the field of FCCL is that it also has the production capacity of PI and RTF/HVLP copper foil, which can effectively reduce costs and improve product competitiveness. According to the company, FCCL is currently engaged in small volume production, regular FCCL has implemented small orders in the third and fourth quarters of 2022, and very thin FCCL is currently in the customer testing and certification stage. We expect the company's 2023 FCCL revenue to be 21m/159m in 2024 and will grow rapidly in the future. On the other hand, the certification of resistive thin film terminal is under way, and due to the leading share of domestic acoustics / mobile phone manufacturers, we believe that the volume of thin film resistor customers after a breakthrough has high certainty. At the same time, its gross profit margin is considerable, which will contribute to a better profit increment in the future.
Short-term performance is under pressure; multi-business parallel efforts can be expected in the future: Android electromagnetic shielding film prices show a downward channel, coupled with copper foil / FCCL production base depreciation drag, short-term company performance pressure. But the follow-up demand for mobile phones is expected to recover, while major customer breakthroughs will open up market space and drive gross profit repair. On the other hand, peelable copper, FCCL, thin film resistance multi-business to promote synchronously, 23 years to gradually implement the order, 24 years and later will enter the release period. We expect the company's 1Q23 to be a low point, which is expected to turn into profit in the third quarter, and the follow-up results will grow at a high speed.
Valuation and suggestion: the company's layout materials are not directly matched in A shares, and we suggest that we compare the valuation level of semiconductor material manufacturers. We forecast the company's 2025 net profit of-11 million / 156 million / 363 million, and give the company 30x 2025 PE (vs 43% 2025-2028 net profit CAGR) a discount of 9.9 WACC to the previous target price of 102RMB (originally 103RMB, based on the same 50x PER,WACC in 2024), maintaining the "better than the market" rating.
Risks: 1) new product promotion is not as expected; 2) competition intensifies; 3) copper prices continue to rise and impact profitability; 4) capacity release is not as expected.