Event: On August 25, 2023, the company released its 2023 semi-annual report. 23H1 achieved revenue of 1,972 million yuan, an increase of 11.83% over the previous year; realized net profit of 491 million yuan, an increase of 13.67% over the previous year; and achieved net profit of 509 million yuan after deducting non-net profit of 509 million yuan, an increase of 18.22% over the previous year. In terms of a single quarter, 23Q2 achieved revenue of 1,042 million yuan, an increase of 12.92% over the previous year; realized net profit of 260 million yuan, an increase of 14.17% over the previous year; and achieved net profit of 279 million yuan after deducting non-return net profit of 279 million yuan, an increase of 17.31% over the previous year.

Profitability is expected to stabilize, and expenses are well controlled.

In terms of profitability, the company's gross margin and net profit margin in 23H1 were 38.77%/25.02%, respectively, an increase of 0.25 pct/0.11 pct over the previous year. The gross margin improved and the company's profitability stabilized. Thanks to stable prices of major raw materials, the supply of substrate film was basically relaxed.

In terms of expenses, the company attached importance to cost control. The cost rate during the 23H1 period was 7.31%, down 0.98 pct from the previous year. Among them, the sales expense rate, management cost rate, and financial expense rate were 1.35%/3.98%/-1.28% respectively, down 0.34 pct/0.33 pct/0.06 pct, respectively. The company continued to invest in R&D. 23H1's R&D investment reached 64 million yuan, an increase of 3.93% over the previous year.

The leading position in the thin-film capacitor market is stable, and the company continues to expand production capacity.

The thin-film capacitor market has good prospects for development. According to Allied Market Research statistics, the global thin-film capacitor market is about 3.2 billion US dollars in 2021. It is expected to grow to 5.2 billion US dollars by 2025, and the CAGR will reach 13% in 2021-2025. The company's main business is a complete range of film capacitor products, covering a full range of PCB film capacitors, AC film capacitors and power electronics film capacitors to meet the needs of various industries such as industrial control, photovoltaics, wind power, new energy vehicles, rail transit, smart grids, home appliances, and lighting. As the construction of the fourth phase of the new energy film capacitor technical improvement project in the company's Dongfu plant progresses, it is expected that the company's thin-film capacitor market share will expand further along with the increase in production capacity in the future.

The company's photovoltaics, industrial control, and new energy vehicle markets continue to grow.

The company is actively expanding high-end customers in the fields of new energy vehicles, photovoltaics, wind power, industrial control, rail transit, and home appliances. 1) Photovoltaics: Benefiting from the “dual carbon” policy, revenue has increased dramatically. 23H1's global market share of products in the photovoltaic sector has reached more than 60%; 2) New energy vehicles: The NEV market is hot, and the company's corresponding product sales volume has increased. According to NE era data, the company's DC support (DC-Link) thin film capacitors for new energy vehicles reached 35.4% in 22, ranking first; 3) Industrial control: With the development of communication technology, cloud computing and industrial automation, the localization of rail transit and power grid components is growing steadily.

Investment suggestions: We expect the company's revenue for 2023-2025 to be 46.57, 58.21 billion yuan, and 7.25 billion yuan, respectively, with corresponding growth rates of 21.4%, 25%, and 24.5%, respectively; net profit to return to the mother is 11.96, 14.86, and 1,837 billion yuan, corresponding to 18.8%, 24.3%, and 23.6%, respectively. Using the closing price on September 1 as the benchmark, corresponding PE to 2023-2025 is 21X, 17X, 14X. Maintain the “Recommended” rating.

Risk warning: risk of fluctuations in raw material prices; risk of exchange rate changes.