Description of the event
The company released its report for the third quarter of 2023. In the first three quarters, the company achieved operating income of 1.39 billion yuan, +37.28% year-on-year; realized net profit of 132 million yuan, -19.15% year-on-year; and realized net profit of 337 million yuan, or -70.18% year-on-year. In the third quarter alone, it achieved operating income of 561 million yuan, +35.37% year-on-month, +15.26%; realized net profit of 36 million yuan, -42.13% year-on-year, -35.46%; and realized net profit of 12 million yuan, -76.29% year-on-year, and -44.93% month-on-month.
Incident reviews
The company's revenue grew steadily in the first three quarters, and R&D investment continued to increase. In the first three quarters of 2023, the company's revenue increased year on year, with a continuous increase from month to month. The company's main products include process components, structural components, module products and gas pipelines. The proportion of modules and gas pipelines increased during the reporting period, while the share of components declined. The company is in a leading position in the domestic semiconductor equipment precision parts manufacturing industry, seizes opportunities for localization, and continues to focus on research and development. In the first three quarters of 2023, the company invested 149 million yuan in R&D expenses, +89.25% over the same period; the R&D expenditure rate was 10.73%, +2.95pcts; in the third quarter, the company's R&D expenses rate was 10.22%, +2.35 pcts year-on-year.
Profitability levels are under pressure in the short term due to changes in product structure and increased expenses. In the first three quarters of 2023, the company's gross profit margin was 27.09%, y-6.2pcts; net profit margin was 9.53%, year-on-year -5.7pcts. In the third quarter, gross profit margin was 26.40%, flat month-on-month, -6.5pcts; net profit margin was 6.28%, -5.8pcts month-on-month, -7.3pcts yoy. The short-term pressure on profit levels is mainly due to: 1) the company's product structure has changed, the share of revenue of module products with relatively high raw material costs and relatively low gross profit has increased dramatically, the revenue growth of component products that use a lot of machinery and equipment falls short of expectations. The pace of production of machinery and equipment invested in advance is mismatched with industry prosperity, and the scale effect has not yet been reflected; 2) the company has prepared for expansion of production in many factories in advance. Labor costs, depreciation, and amortization expenses have increased; 3) the company has strengthened technical reserves, and greatly increased R&D expenses.
New production capacity has been released one after another, and the scale effect is beneficial to future growth. Currently, the company has deployed production capacity in Shenyang, Beijing, Nantong, the US, and Singapore. Among them, the annual production capacity plans for both Nantong and Beijing are 2 billion yuan. The Nantong plant is expected to be put into operation this year and reach production in 2025; the Beijing plant is expected to start production in 2024 and reach production in 2027. Under the trend of domestic production substitution, the continuous release of additional production capacity will help the company further increase its market share, and in the long run, it will benefit revenue growth and the restoration of profit levels brought about by scale effects.
Investment advice
Considering the increase in the share of module products, the increase in depreciation released from production capacity, and the company's continued R&D investment, the company's 2023-2025 EPS was 1.03/1.54/2.36 yuan respectively, the corresponding company's closing price on October 31 was 79.20 yuan, and the 2023-2025 PE was 77.1 /51.4 /33.5 times, respectively, maintaining the “buy-A” rating.
Risk warning
Competition in the market has intensified, fund-raising projects have not progressed as expected, and the dependency on a single customer is too high.