In 2022, the company achieved net profit of 614 million yuan (+11.18% year-on-year), net profit of 563 million yuan (-1.22% year-on-year), of which Q4 net profit was 170 million yuan (+56.39% year on year, +10.60% month on month) and net profit of 155 million yuan (+50.3% year on year, +9.31% month on month). The performance was in line with expectations. In 2023, policy and demand resonated to drive the rapid development of the charging pile industry. The combination of insulation materials benefited rapid charging & battery structure changes. It is expected that the company's new energy business will benefit from a sharp increase in industry segments. In terms of traditional business, the bottom of the current market is clear+the high margin market continues to expand, and it is expected that the company will return to a rapid upward channel. We maintain the company's PE valuation 15 times in 2023, corresponding to the company's target market value of 121 billion yuan and target price of 9.6 yuan, maintaining the company's “buy” rating.
Matter: On April 14, 2023, the company released its 2022 annual report. Fumo's net profit in 2022 was 614 million yuan, up 11.18% year on year; Q4 net profit was 170 million yuan, up 56.39% year on year and 10.60% month on month. Our comments on this are as follows:
The company's net profit of 563/155 million yuan (+6.76%/+50.37% YoY) for 2022/22Q4 was deducted, and 22H2 increased month-on-month. In 2022, the company achieved operating income of 5.341 billion yuan (-1.22% year-on-year), net profit of 614 million yuan (+11.18% year-on-year), and achieved net profit of 563 million yuan (+6.76% year-on-year) after deducting net profit from the mother. The performance was in line with market expectations. On a quarterly basis, 2022Q4 achieved revenue of 1,457 million yuan (-2.02% YoY, +8.24% YoY), achieved net profit of 170 million yuan (+56.39% YoY, +10.60% YoY), and achieved net profit of 155 million yuan (+50.37% YoY, +9.31% month-on-month).
The pressure on the company's performance in 2022 was mainly due to rising upstream commodity and raw material prices combined with weakness in some downstream industries, which led to a decline in the company's production and sales volume. On a quarterly basis, the company's 2023Q3-Q4 performance all improved sequentially. We expect the impact of raw materials and demand side to gradually weaken.
The increase in the share of high-margin business hedges the impact on the raw materials side, and overall costs are properly controlled. In 2022, the company's gross profit margin was 31.53% (-0.96pct year over year), and the net profit margin was 11.51% (+1.28pcts year over year). The decline in gross profit for the whole year was mainly due to the increase in raw material procurement costs. On a quarterly basis, 2022Q4's gross profit margin was 32.66% (+7.61 pcts year over year, +1.66 pcts month on month), and the net interest rate was 11.65% (+4.35 pcts year on year, +0.25 pct month on month).
In terms of rates, the cost rate is 17.68% (year-on-year -1.90pcts), of which the sales expense rate is 6.07% (year-on-year - 0.05pct); the management fee rate is 4.55% (year-on-year - 0.87pct); the R&D expenses rate is 5.73% (year-on-year - 0.27pct); and the financial expense rate is 1.33% (year-on-year - 0.71 pct).
The electronics and wire business is under pressure, and the new energy business is showing outstanding performance. By business, in 2022, the company's electronic products achieved revenue of 2,148 billion yuan, -5.30% year on year, production and sales volume was 53.36/5.332 billion meters, -20.11%/-18.54% year on year, average unit price 0.40 yuan/meter, +16.32% year on year; power products achieved operating income of 1,045 million yuan, +5.57% year on year, production and sales volume of 478.73/45303 million sets, +1.70%/-4.87% year on year, average unit price 230.59 yuan/set, +10.98% year on year; Wire products achieved revenue of 1,362 million yuan, -13.15% year on year, production and sales volume of 20.54/2033 million tons, compared to -17.54%/-19.58%, average unit price of 0.67 yuan/meter, +8.00% year on year; new energy products achieved revenue of 664 million yuan, +41.96% year on year, of which production and sales of new energy vehicle related products were 232.07/2.3031 million units, +20.03%/+19.07% year on year, production and sales of new energy wind power products amounted to 283/283 million kilowatt-hours, same as last year Compared to -15.77%/-15.77%.
Shanghai Ket New Energy's lithium battery protection and other products grew rapidly. The company's overall revenue reached 318 million yuan, +18.27% year on year, and net profit of 507 million, +23.35% year on year. In 2022, due to raw material prices+weak downstream demand, sales of electronic and wire products were under pressure, and production capacity was not sufficiently adjusted. However, due to continued favorable policies and high prosperity in the NEV industry, production and sales of the NEV business were booming, and revenue grew rapidly.
High-tech business continues to expand, and plans to list subsidiaries continue to advance. As a “new materials+new energy” comprehensive enterprise, the company specializes in innovation. Some electronic products have already replaced foreign products; power products maintain high gross profit margins; wire products are shifting from the field of electronic consumption to high-speed communication, automobile transmission and other application fields; new energy series products have high customer approval+high gross profit advantages are clear. It is expected that the company will continue to develop its three traditional businesses of electronics, electricity, and wire in the future, focus on key product lines, strengthen R&D in high-end fields, and expand sales share in the core market. At the same time, according to the company's announcement, the company will actively promote plans for listing on the Shanghai Kotte to Beijing Stock Exchange and Leting Zhilian to the GEM listing plan.
Risk factors: 1) downstream customer sales fell short of expectations; 2) battery price increases affected short-term market demand; 3) industry competition increased risk; 4) charging pile construction fell short of expectations; 5) lithium battery insulation material production and sales fell short of expectations; 6) consumer electronics continued to be sluggish; 7) risk of fluctuations in raw material prices; 8) the company's new customer development fell short of expectations; 9) subsidiary listing progress fell short of expectations.
Investment advice: Considering the acceleration of domestic substitution process for nuclear heat-shrinkable materials in the high-end market, it is expected that the market share will continue to increase. Coupled with the recovery in downstream demand in the wire and cable industry and the release of high-quality products developed by new energy vehicles, the company's performance is expected to grow steadily. Considering the uncertainty of downstream demand for the whole year, we adjusted the company's net profit forecast value for 2023-24 to 742/993 million yuan (the original forecast was 806/1,096 million yuan), the corresponding EPS forecast value for 2023-24 was 0.59/0.78 yuan/share (the original forecast corresponds to 0.64/0.87 yuan/share), and the forecast for additional 2025 is 1,076 million yuan, corresponding to EPS 0.85 yuan/share, referring to the traditional business Wanma Corporation/Changcable Co., Ltd. Baosheng Technology's 2023 PE The valuation is 17/18/15x (Wind's consistent expectations), and the new energy business refers to Yonggui Electrical/Pan-Asia Micro as 25/25x (Wind's consistent expectations). We gave the company 16 times PE valuation in 2023, corresponding to the target price of 9.6 yuan/share, maintaining the “buy” rating.