occurrences

The company released its semi-annual report for 2023 on August 24. In 1H23, it achieved revenue of 517 million yuan, an increase of 15.54%; realized net profit of 35 million yuan, a decrease of 38.44%; and achieved non-net profit of 32 million yuan, a decrease of 33.06%. 2Q23 achieved revenue of 258 million yuan, a decrease of 0.39%; achieved net profit of 0.2 million yuan, an increase of 33.33%; achieved non-net profit of 118 million yuan, an increase of 38.46%; achieved EPS of 0.16 yuan, a decrease of 31.93%.

reviews

Soft magnetic losses continued in the first half of the year, and performance fell slightly short of expectations. Although sales revenue in the automotive and home appliances sectors continued to grow in the first half of the year, market competition intensified, and product volume and prices fell sharply. The gross profit margin of wet pressed magnetic tiles was 29.56%, down 1.87 pcts from '22; the soft magnetic business had a large upfront investment, and the subsidiary Dragon Magnetic Metal lost 112 million yuan in the first half of the year; the micro-inverse business was officially merged. Envo New Energy achieved revenue of 62 million yuan, net profit of 103 million yuan. Q2 shipments declined due to market policy reasons. The company's financial expenses increased by 334% in the first half of the year, mainly due to an increase in interest expenses.

Permanent magnet production capacity is steadily increasing, and soft magnets are expected to contribute to profits. 1H23 has an annual production capacity of nearly 45,000 tons of wet pressure magnetic tiles, and has a production capacity of 4,000 tons of metal soft magnetic powder cores and 3,000 tons of ferrite powder cores. The company's production capacity for the first phase of automotive and photovoltaic wire-wound inductors has reached 12 million units/year. Construction of the second phase has already started and is expected to be put into operation in the second half of 23; the integrated inductance industry has built two automated production lines. With the expansion of the company's soft magnetic field and the gradual release of production capacity and dilution of upfront investment, it is expected that soft magnets will contribute to profits this year.

Minor inversions gradually contribute to performance, and complementary industrial chains enhance resilience. In December '22, the company acquired 51.43% of Envo New Energy's shares for 180 million yuan, which was included in the consolidated statement in '23. 1H23's micro inverters achieved revenue of 61.58 million yuan, accounting for 12% of revenue in the first half of the year, gross margin of 33.51%, and net profit of 12.6 million yuan. The company's soft magnetic ferrite can be used in Envo's micro inverters. The industrial chain is further extended to the application side, improving the company's industrial layout in the field of new energy. I am optimistic about the steady growth of the company's permanent magnet business, the steady layout of the soft magnet field, and the resilience of the company's profits brought about by the downstream extension of the industrial chain.

Profit Forecast & Investment Advice

According to the company's performance for the first half of the year 23, the company's net profit for 23-25 was lowered by 45%, 37% and 28% respectively. The company's net profit for 23-25 is expected to be 111 million yuan, 180 million yuan, and 292 million yuan respectively. The corresponding EPS is 0.93 yuan, 1.50 yuan, and 2.43 yuan, respectively, and corresponding PE is 28.1 times, 17.3 times, and 10.7 times, maintaining the “buy” rating.

Risk warning

Downstream demand falls short of expectations: New product development falls short of expectations, etc.