The full-year results were in line with expectations, and 23Q1 was under short-term pressure. The company achieved revenue of 1.6 billion yuan in '22, an increase of 28% over the previous year, and Guimu's net profit was 190 million yuan, an increase of 47% over the previous year. The increase in revenue was due to a significant increase in demand for cooling materials for new models of stand-alone models from major North American customers compared to the past, and sales revenue in other industries such as digital infrastructure also maintained a steady growth trend.

The company supplied more high-priced, high-value-added products, and the increase in the proportion of die-cut products led to a 2pct increase in gross margin to 28.2% in '22. The company expanded production in Wuxi and Dongguan in '22, greatly improving graphite product delivery capabilities, further strengthening global delivery capacity and supply stability, and consolidating the company's leading position in artificially synthesized graphite in the world.

The 23Q1 performance was affected by downstream demand and major customer demand. Revenue increased 15% year-on-year to $3.1 billion, while net profit of Guimu declined 13% to $0.2 billion.

Positioned as a comprehensive solution provider, two-dimensional growth in product matrices & application fields can be expected. In addition to the main graphite products, the company has various product capabilities such as electromagnetic shielding materials, thermal interface materials, cooling modules, adhesives, etc., and is one of the few domestic manufacturers with overall reliability solution capabilities. On the one hand, the company is expected to enrich the product range among major customers. For example, as a preferred strategic R&D partner for thermal interface materials for important customers, the company will continue to work with customers to define the next generation product roadmap. On the other hand, on high-growth tracks such as intelligent transportation, digital infrastructure, and new energy, the company is also expected to enter integrated heating solutions with existing heat-conducting materials, greatly increasing the added value of products and the value of stand-alone machines. Overall, China's relevant high-end electronic functional materials are still mainly dominated by European, American, Japanese and Taiwanese manufacturers. The localization rate is low. The company is expected to benefit from the trend of domestic substitution, and there is plenty of momentum for long-term growth.

Benefiting from the upgrading of cooling demand in the digital infrastructure industry. The company has deep accumulation in the field of digital infrastructure. Historically, thermal management and electromagnetic shielding solutions centered on thermally conductive interface materials and electromagnetic shielding materials have become long-term suppliers of related hardware manufacturers such as communication base stations, optical modules, servers, etc. While AI technology has brought about a significant increase in computing power, it also poses a huge challenge to the heat dissipation of chips, single boards and systems. This has brought explosive demand for the company's “comprehensive reliability solutions” for thermal management based on graphite materials, heat-conducting interface materials, and two-phase flow products. Currently, in the fields of communications and data center/servers, the company supplies a series of products such as thermal interface materials and thermal modules in batches. It has multiple card advantages such as technology, product coverage, and customers, and is expected to benefit deeply from the increase in performance brought about by industry trends.

We forecast the company's earnings per share for 23-25 to be 0.93/1.20/1.59 yuan respectively (the original 23-24 forecast was 0.97/1.39 yuan, mainly lowering shielding material revenue and gross margin forecasts). According to comparable companies' 23 times the PE valuation level, the corresponding target price was 30.69 yuan, maintaining the purchase rating.

Risk warning

Smartphone sales fall short of expectations; risk of product price fluctuations; 5G construction progress falls short of expectations; risk of gross margin fluctuations.