Maintain the “increase in holdings” rating and maintain the target price of 80 yuan. Despite the low price of lithography gas, the company's newly expanded customers began to place orders. Combined with an increase in the gross margin of export products, Q3 achieved net profit of 44 million yuan (QoQ +47%) after deducting non-return of net profit (QoQ +47%), and the performance was in line with expectations. Considering that it still takes time for new customer orders to be released, the impact of interest charges on Q4 conversion interest may continue. The 2023-2025 EPS was lowered to 1.70 (-0.13) /2.41 (-0.12) /3.16 (-0.21) yuan, respectively. Considering the upward trend in industry valuation centers, the target price of 80 yuan was maintained, and the “increase in holdings” rating was maintained.
The recovery in utilization rates failed to boost the price of photolithography, but new customers began placing orders to drive marginal improvements in the company's performance. The recovery in the operating rate of the 2023Q3 foundry has not yet been transmitted to the specialty gas sector. In October, the price of neon gas fell to 180-260 yuan/m3, driving the price of lithography gas products such as neon-krypton mixtures to remain low. The company's revenue for the first three quarters was 1,129 billion yuan (YoY -19.51%). Considering that at present, the company still has 6 on-site gas production projects in operation or are undergoing inspection, we believe Q4 revenue will begin to improve.
Prices of overseas products have improved gross margin performance, and the impact of interest charges on debt conversion continues. The company's germanium products have passed the 5nm process production line certification of Korean enterprises and optimized gross profit through industrial chain extension, etc., and the overall gross margin for Q3 reached 32.1% (QoQ+3.85pct). Q3 Interest on corporate debt conversion is still being treated on a fee basis. Interest expenses for the first three quarters were 22 million yuan (YoY +214.29%), achieving net profit of 113 million yuan (YoY -37.19%) after deducting non-return net profit of 113 million yuan (YoY -37.19%). We believe that the impact of interest charges will gradually be eliminated after the fund-raising project starts.
Focusing on high-end specialty gas products, new products will gradually contribute to performance. The company is focusing on developing specialty gas categories used in advanced processes, which currently account for about 30% of products in the IC field. With the completion of research and development of new gas mixtures and fluorocarbon products, we believe it is expected to contribute to performance starting in 2024.
Risk warning: 1) Raw material prices are falling; 2) The introduction of new electronic specialty gas products falls short of expectations.