Core views

The company has outstanding technical advantages in multi-layer porcelain dielectric capacitors, continues to benefit from national defense informatization, and the self-produced components sector is expected to maintain steady growth. In terms of agency business, the agency business advantages accumulated by the company over the years are remarkable, and it is actively developing new product lines and emerging markets, and will develop accordingly with the rapid development of the electronic components industry. The company has stable cooperative relationships with many customers in the defense industry, has obvious market advantages, and is expected to usher in a recovery in the future. The localized chip packaging business is driving the continuous increase in demand for ceramic tube shells, which is expected to create a new growth curve for the company.

occurrences

The company released the 2023 semi-annual report. During the reporting period, the company achieved operating income of 980 million yuan, a year-on-year decrease of 29.59%; realized net profit of 223 million yuan, a year-on-year decrease of 54.12%.

Brief review

1. The company's performance is under pressure in the short term, and long-term downstream demand is expected to be restored in the first half of 2023. The company achieved revenue of 980 million yuan, down 29.59% from the same period last year. Mainly due to the weak market boom in the electronic components industry where the company is located, the slow recovery of customer demand, the core products of the self-produced business, high-porcelain reliable dicapacitors, and sales of some products under the agency business, and sales of some products under the agency business have declined; net profit of 223 million yuan and non-deducted net profit of 221 million yuan was achieved, respectively, from the same period of the previous year. %, mainly because the company has increased investment in expanding new businesses such as microwave modules, microcontrollers, microprocessors, ceramic circuit boards, and ceramic tube cases, etc., and has maintained a high level of R&D expenses. To this end, it has strengthened its talent introduction efforts. The number of employees has continued to increase net growth. At the same time, the number of employees has maintained a basic stability in employee remuneration levels, and overall labor costs have been rising steadily. Looking ahead to next year, the company's self-produced business will continue to benefit from the construction of defense informatization, and the agency business is deeply tied to core customers to benefit from strong demand in the customer industry. It is expected that the company's downstream demand will not change for a long time, and 2024 may usher in a performance recovery.

2. Profit levels are under pressure in the short term and are expected to gradually recover in the future

In the first half of 2023, the company's gross margin was 46.47% (-8.48pcts), net profit margin was 22.54% (-12.36pcts), and profitability declined. The expenses for the period were 102 million yuan, an increase of 4.75% over the previous year, and the cost rate for the period was 10.49% (+3.44pcts). Among them, sales expenses were 42 million yuan, up 8.35% year on year, and the cost rate was 4.29% (+1.50 pcts), mainly due to the company's increase in business-related expenses in response to the external environment where market demand is weakening; management expenses were 58 million yuan, up 6.75% year on year, and the cost rate was 5.96% (+2.03 pcts), due to the increase in professional service fees and long-term asset depreciation and amortization expenses brought about by the company's expansion of new business; R&D expenses were 47 million yuan, a year-on-year decrease of 5.43%, and an expense ratio of 481 million yuan % (+1.23pcts), R&D expenses were basically the same as in the same period last year; financial expenses were 02 billion yuan, a year-on-year decrease of 49.13%, and an expense ratio of 0.24% (-0.09pct). This was due to an increase in the company's current cash management income and a decrease in acceptance-related expenses due to a decline in acceptance drafts issued by banks in the current period.

3. Actively lay out the high-end sector to achieve technological breakthroughs, and advance the military and the civilian sector to provide a driving force for long-term development, and civilian products: various products under development in the high-end field have been mass-produced, and all tracks have progressed together to welcome definite opportunities for performance growth. The company is actively engaged in the design, development and mass production of automotive-grade multi-layer porcelain dielectric capacitor products. Vehicle regulations represent specification products that have completed a series of R&D, product certification and customer certification, and have achieved small-batch supply. It is expected to usher in definitive performance growth through the automotive electronic circuit. In addition, the company's high-power RF microwave ceramic dielectric capacitors and package case products have completed some development and finalization, and have been supplied in small quantities. It is gradually being promoted in the fields of communications, medical care, etc. At the same time, the company has developed a variety of resistive network products and thin-film resistor products, and has achieved mass production.

Military products: Product quality is high, reliable, continuous research, perfect system and deep reserves. The company continues to carry out highly reliable technical research, with remarkable results. Capacitors: The expansion of high-power radio frequency microwave multilayer chip porcelain dicapacitors has been carried out, the development of pulsed multi-layer ceramic dicapacitors has been completed, and the full voltage and size of the gold terminal multi-layer porcelain dielectric capacitors have been covered by market demand, and the above products have all been supplied in batches; at the same time, the company has carried out serial expansion on the basis of single-layer porcelain dicapacitors, expanded horizontally products such as thin-film microstrip circuits, etc., and has achieved mass production and supply. In terms of filters: Small chip filters have been developed and delivered in batches. More than 30 customized products have been developed, which can meet users' modular, multi-functional, and comprehensive usage requirements. In terms of microwave modules: It already has R&D and production capabilities for products such as microwave high-power devices and broadband frequency conversion channels. The technical level of the products developed is at the highest level in the industry, and has been cooperated and supplied by many companies. The company insists on driving development through scientific and technological innovation, continuously increases investment in R&D, accelerates serialization and industrialization of new product development, and continuously broadens its growth path.

4. Demand for localized chip packaging is strong. Ceramic-related products create a new growth curve The company has set up a new industrial base in Hefei. Relying on “ceramic technology” to expand into ceramic-related products such as ceramic materials, ceramic circuit boards, and ceramic tube shells, etc., it has initially developed the ability to provide highly reliable microsystem packaging solutions in fields from basic materials, ceramic circuit boards, and ceramic tube cases to integrated packaging. As an important bridge between internal chips and external circuits in high-end semiconductor components, ceramic package shell products are widely used in high-end fields such as integrated circuit packaging, automotive electronics, communication equipment, aerospace, and medical devices. According to QYResearch data, the global ceramic encapsulated tube shell and base market is about 14.2 billion yuan in 2022, and is expected to continue to grow in the future. By 2029, the market size will be close to 24.5 billion yuan, and the CAGR will be 7.3% over the next six years. The localized chip packaging business is driving the continuous increase in demand for ceramic tube shells, which is expected to create a new growth curve for the company.

5. Profit prediction and investment rating: Core technology continues to break through, downstream demand has not changed for a long time, maintenance ratings The company has outstanding technical advantages in multi-layer porcelain dicapacitors, continues to benefit from defense informatization, and the self-produced components sector is expected to maintain steady growth; in terms of agency business, the agency business advantages accumulated over many years are remarkable, and it is actively developing new product lines and emerging markets, and will develop accordingly with the rapid development of the electronic components industry. In addition, the company relies on years of deep cultivation, continuous innovation and practice in the field of electronic components. It has a rich range of core patented technologies and products with independent intellectual property rights. Its ability to independently guarantee high-end products is constantly improving, and its products are widely penetrated into various industries. The company has stable cooperative relationships with many customers in the defense industry, has obvious market advantages, and is expected to usher in a recovery in the future. The company's net profit from 2023 to 2025 is estimated to be 721, 8.66, and 1,018 million yuan respectively, with year-on-year increases of -10.35%, 20.21%, and 17.52% respectively. The corresponding EPS for 2023 to 2025 is 3.11, 3.73, and 4.39 yuan respectively. The corresponding PE share price is 19.99, 16.63, and 14.15 times, respectively, maintaining the purchase rating.