Core views

1. The company released a semi-annual report. 2023H1 achieved revenue of 1,763 billion yuan, a year-on-year decrease of 1.18%, and net profit of 36 million yuan, a year-on-year decrease of 25.81%; 2. Company strategy: P&S, SMC, MIM three-wheel drive;

3. The company's MIM products mainly provide customized development and production services for MIM parts+shaft components for folding screen mobile phones, which is expected to benefit from the rapid growth of the folding screen mobile phone market; 4. The company's soft magnetic composites (SMC) are mainly used in the field of power electronics in new energy. The “60,000 tons of soft magnetic materials industry base project” built by the company in Linyi, Shanxi is accelerating, opening up space for future SMC sector growth; 5. The P&S sector is under pressure for a short period of time, and the company continues to expand P&S parts usage scenarios.

occurrences

The company released the 2023 semi-annual report.

The company issued a semi-annual announcement. 2023H1 achieved revenue of 1,763 million yuan, a year-on-year decrease of 1.18%, a year-on-year decrease of 25.81%; 2023Q2's revenue of 961 million yuan, a year-on-year increase of 7.48%, a year-on-year increase of 19.78%, net profit of 0.16 million yuan, a year-on-year decrease of 60.23%, and a year-on-year decrease of 15.08%.

Brief review

1. Company Strategy: P&S, SMC, MIM three-wheel drive.

The company adheres to the development strategy of “using the three new material technology platforms of powder pressing and molding P&S, soft magnetic composites SMC and metal injection molding MIM as the foundation, and is committed to providing optimal new material solutions and value-added services for new energy and high-end manufacturing”, giving full play to the synergistic advantages of the three technology platforms in terms of customers, technology, bases, management, etc., concentrating resource advantages to enhance the competitiveness and industrial scale of the company's SMC, and laying the foundation for the company's long-term stable development.

2. The MIM sector is expected to benefit from the rapid growth of the folding mobile phone market.

The company's MIM segment focuses on providing customized development and production services for MIM parts and shaft components for folding screen mobile phones. At the same time, the company also continues to promote new product development, especially long-term businesses such as medical devices and automobiles, optimize the product structure, and gradually reduce the impact of fluctuations in the consumer electronics industry. In the first half of 2023, the MIM sector achieved main business revenue of 38,200 yuan, a year-on-year decline of 34.01%, accounting for 21.85% of the company's main business revenue. The decline in main business revenue in the MIM sector was mainly affected by factors such as the decline in the boom in the consumer electronics market industry, but its main business revenue in the second quarter increased 71.06% from the first quarter.

Folding screen phones are expected to enter a period of rapid growth. According to the TechInsights research report, in the second quarter of 2023, global folding screen phone shipments increased 24% year over year. The Asia Pacific region accounts for nearly 2/3 of global folding screen smartphone shipments. Samsung remained the leader in the global folding screen smartphone market this quarter, but due to increased competition, its shipments fell 37% year over year. Huawei ranked second in the world and achieved a 103% increase in folding screen sales. According to IDC statistics, 2

023Q2, China's folding screen mobile phone market shipped about 1.26 million units, up 173.0% year on year; 2023H1 shipped 2.27 million units, up 102.0% year on year. Among them, Huawei Q2 maintained the top position in the domestic folding screen mobile phone market, with a market share of 43.0%; VIVO and OPPO received 19.7% and 15.9% market shares respectively, ranking second and third. Currently, with the increasing improvement of related technologies such as hinges and screens, and the price of accessories continues to drop, the completeness of folding screen mobile phone products is also becoming more mature, the user experience of the product has improved markedly, and product prices are showing a downward trend, and the threshold for users to purchase a machine is constantly being lowered. Shipments of folding screen phones have achieved countermarket growth, and it is also the only market segment that maintains an upward trend in the currently sluggish mobile phone market.

3. The development of the SMC sector is on the “fast track”.

Through resource integration, the company initially formed a multi-SMC production base situation with a “clear division of labor, unique characteristics, and collaborative progress”, continuously meeting the multi-level needs of customers with a rich material system. During the reporting period, the main business revenue of the SMC sector reached 488 million yuan, an increase of 67.23% over the previous year, accounting for 27.96% of the company's total main business revenue. The “Soft Magnetic Materials Industry Base Project with an Annual Output of 60,000 Tons” built by the company in Linyi, Shanxi, is being accelerated, opening up space for the company's future SMC sector to grow.

The company's soft magnetic composites (SMC) are mainly used in the field of new energy power electronics. Soft magnetic materials used in power electronics mainly include soft magnetic ferrite, metal magnetic powder cores, amorphous nanocrystals, silicon steel, etc. With the development of power electronics towards higher frequency, miniaturization, and high power density, higher and higher requirements are being placed on the miniaturization and loss of magnetic devices. Since metal magnetic powder cores have excellent saturation resistance and good high temperature characteristics, they are gradually replacing other soft magnetic materials, and are mainly used in PFC inductors, step-up and step-down inductors, output filtering inductors, power inductors, and energy storage inductors, etc., which provide powerful materials for miniaturization and reliability of power electronics support.

4. The P&S sector is under short-term pressure.

Air conditioning compressors and refrigerator compressors in the field of home appliances are one of the main application areas for powder pressing and forming P&S parts. During the reporting period, the P&S segment achieved main business revenue of 876 million yuan, a year-on-year decrease of 1.77%, accounting for 50.19% of the company's total main business revenue. The decline in main business revenue in the P&S sector was mainly due to a 6.11% year-on-year decrease in main business revenue in the home appliances sector.

The company continues to expand usage scenarios for P&S parts, actively develop new products for customers, increase development efforts in fields such as new energy vehicles and power tools, and at the same time increase the integration of P&S and SMC technology, and collaborate with P&S pressing technology and various process technologies to SMC to expand new application scenarios.

Profit forecast and investment suggestions: We expect the company's revenue from 2023-2025 to be 42.54/49.86/5.821 billion yuan, respectively, up 14.16%/17.21%/16.75%, respectively; net profit for homo is 188/301/402 million, up 20.91%/59.99%/33.38%, respectively. Considering the future performance growth rate brought about by the company's SMC expansion and the rapid growth of the folding screen mobile phone market, the company is expected to benefit and give it a “buy” rating.

Risk analysis

1. The industry to which the company belongs is a sub-industry of the new materials industry - powder metallurgy (PM) industry. According to the principles of powder metallurgy technology and different aspects of its process characteristics, powder metallurgy technology can be applied to the preparation of materials such as structural parts, hard alloys, magnetic materials, friction materials, etc. Dongmu Co., Ltd. has three major business segments: MIM (metal injection molding), SMC (soft magnetic composites), and P&S (powder metallurgy molding), which mainly correspond to precision consumer electronics parts and components, photovoltaics and new energy vehicles, and home appliances. Demand for downstream automobiles, mobile phones, and home appliances declined, which had an adverse impact on the company's powder metallurgy business. If downstream demand falls short of expectations, demand falls 10%, which is expected to affect the company's gross profit decline by 5-6%.

2. The progress of capacity expansion fell short of expectations. The “Soft Magnetic Materials Industry Base Project with an Annual Output of 60,000 Tons” built by the company in Linyi, Shanxi, is being accelerated. If the expansion of the company's production capacity falls short of expectations, it will adversely affect the subsequent production capacity and performance of the company's SMC sector.

3. Risk of fluctuations in raw material prices. Since the cost of raw and auxiliary materials accounts for a relatively large share of the cost of the company's powder metallurgy products, and with changes in the economic cycle and market, if international bulk raw material prices rise, it will pose a certain risk to the company's profitability. If the company is unable to effectively facilitate the price, for every 10% increase in the cost of iron powder, the cost is expected to rise by 4-5%, and gross profit is expected to drop by 3-4%.