The company's 2023H1 realized income of 1.578 billion yuan,-19.51% compared with the same period last year; realized net profit of 254 million yuan, compared with-48.90% of the same period last year; realized income of 936 million yuan,-16.21% of the same period last year; and realized net profit of 127 million yuan,-57.91% of the same period last year. The company is the core supplier of military MLCC, with a stable market situation and is expected to benefit from the downstream demand repair of MLCC; at the same time, with the continuous expansion of the company's components and leading technology of special ceramic materials, the material business is expected to open the company's second growth curve. Taking into account the downstream order rhythm fluctuations and price reduction pressure, downgraded to "overweight".

23H1 performance is-48.90% compared with the same period last year, and the downstream demand of components is under pressure. Under the influence of the recovery of downstream demand and the intensification of market competition, the company's 23H1 realized revenue of 1.578 billion yuan, year-on-year-19.51%, net profit of 254 million yuan, year-on-year-48.90%, and non-return net profit of 244 million yuan,-49.73%. Or due to downstream price reduction pressure, the company's 23H1 gross margin year-on-year-3.91pcts to 39.38%. On the expense side, the company's 23H1 financial expenses were-18.29% to 14 million yuan compared with the same period last year; due to the increase in depreciation and amortization of assets, the management expenses were + 19.74% to 116 million yuan; and due to the increase in salary and depreciation amortization, R & D expenses were + 24.64% to 58 million yuan. Affected by the increase in the funds of the sales organization, the sales expenses were + 32.4% to 74 million yuan compared with the same period last year, resulting in the 23H1 company's expense rate from + 5.55pcts to 16.58% compared with the same period last year. Combined with the above effects, the company's 23H1 net interest rate was-9.41pcts to 16.53% compared with the same period last year, and its profitability declined. The company's 23Q2 realized income of 936 million yuan, year-on-year-16.21%, net profit of 127 million yuan, year-on-year-57.91%, and non-return net profit of 121 million yuan,-59.12%.

The income of components and trade plate has declined, and the new material plate has developed rapidly. Analysis by plate: 1) components plate: self-produced components are the company's core profit business. Affected by the recovery pressure of downstream demand and the intensification of market competition, the sales volume and gross profit margin of 23H1 components have declined compared with the same period last year, achieving revenue of 656 million yuan, year-on-year-22.81%. 2) Trade section: under the influence of supply and demand and economic situation, consumer clients are still mainly digesting inventory, and shipments are lower than the same period last year. Trade plate 23H1 achieved income of 840 million yuan, year-on-year-20.90%. 3) New materials plate: the company has completed the construction of liquid PCS production line, and built a stable order source with solid polycarbosilane products. 23H1 realized revenue of 77 million yuan, year-on-year + 107.51%. Subsidiary Liya new materials increased investment in research and development, 23H1 research and development expenses + 135.72% to 28 million yuan compared with the same period last year.

The expansion of production has progressed steadily, and the operating cash flow has improved continuously. The scale of the company's 23H1 final inventory is + 9.22% year-on-year to 1.318 billion yuan, of which raw materials are + 19.04% to 296 million yuan, and products are + 25.03% to 181 million yuan year-on-year. The scale of raw materials and products has increased compared with the same period last year, which may indicate that the company is actively preparing goods for production. The scale of the project under construction at the end of 23H1 is 33.99% to 288 million yuan higher than that at the beginning of the period, of which the scale of the Zihuayuan plant (phase I) project is 61.22% to 195 million yuan higher than that at the beginning of the period, and production expansion is progressing steadily. The company's final 23H1 accounts receivable ranged from-4.89% to 1.784 billion yuan compared with the same period last year; due to the reduction in purchase cash and taxes paid, the net operating cash flow of 23H1 was + 10.03% to 570 million yuan year-on-year, with abundant cash flow on hand.

Optimize the layout of the industrial chain and lay the foundation for long-term development. The company is actively cultivating new areas of business such as active components and new materials, and the layout of the industrial chain is being continuously optimized. (1) components sector: 23H1 Shanghai Torch Group uses its own capital of 174 million yuan to acquire a 51.01% stake in Xiamen Core I, and bring it into the scope of the company's consolidated statements. According to Xiamen core generation official website, core generation is mainly engaged in the research, development and sales of power device chips such as IGBT, MOSFET and the third generation silicon carbide / gallium nitride, which are widely used in charger / adapter, BMS, motor drive, switching power supply and other fields, and the chips have entered Huawei, Samsung, OPPO, XIAOMI, Foxconn, Amazon.Com Inc and other power products. We believe that the holding core generation is conducive to the company leapfrogging from passive components to active power devices, further promoting the diversification of the company's product categories and downstream applications, and the competitiveness of the company's components business will be further enhanced. (2) New material plate: the company's CASAS-300 special ceramic materials have mastered a series of proprietary technologies for the industrialization of "high-performance special ceramic materials" by means of exclusive technology license and independent research and development, and the product performance and production capacity have a stable supply capacity. With the continuous iteration of equipment materials in aviation and other fields, the new materials business is expected to open the company's second growth curve.

Risk factors: increasing competition in the industry; order repair in the downstream of the industry is not as expected; the company's new product market development is not as expected; downstream product price reduction risk and so on.

Profit forecast, valuation and rating: the company is the core supplier of military MLCC with a stable market situation and is expected to benefit from the repair of downstream demand of MLCC; at the same time, with the continuous expansion of the company's components and leading technology of special ceramic materials, the material business is expected to open the company's second growth curve. Taking into account the uncertainty of downstream order repair rhythm and price reduction pressure, and combined with the company's 23H1 operating conditions, we downgrade the company's 2023max 2024 net profit forecast to 580,000,000 yuan (the previous forecast value of 1.29Universe 1.58 billion yuan), and increase the 2025 net profit forecast of 920 million yuan, corresponding to the 2023-25 EPS forecast of 1.27pm 1.56exp 2.00 yuan, and the current stock price corresponding to PE of 24x19x15x. Selecting Zhenhua Technology, Hongyuan Electronics and HTC as comparable companies, the average PE of the comparable company's Wind in 2024 is expected to be 13x. Considering the leading technology of Torch Electronics new materials business and the scarcity of products, it is expected to open the company's second growth curve and enhance the valuation center in the future, giving the company 2024 23x target PE, corresponding to the target market value of about 16.4 billion yuan, corresponding to the target price of 36 yuan. Taking into account the downstream order rhythm fluctuations and price reduction pressure, downgraded to "overweight".