Matters:
The company released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 415 million yuan, +6.95% year-on-year; net profit of 54 million yuan, -16.16% year-on-year. Among them, the third quarter achieved revenue of 169 million yuan, +21.57% y/y +11.61%; net profit of 27 million yuan, +6.67% y/y +13.56%; realized gross profit ratio of 51.59%, y-1.6 PCT/month-on-month +0.3 PCT; realized net profit ratio of 15.81%, y-2.02PCT/month-on-month +0.23PCT; performance was in line with expectations.
Commentary:
The performance of consumer electronics in Q3 was impressive, and the Q4 automotive business is expected to continue to gain strength. By business, the Q3 consumer electronics business achieved revenue of 140 million yuan, +20.06% y/y +12.04%. In Q3, the consumer electronics business grew on a month-on-month basis. On the one hand, Q3 was the peak consumer electronics season. Phenomenal products such as the Huawei Mate 60 and Apple iPhone 15 were launched one after another from the end of August to September, stimulating demand for switching devices. As a supplier to Huawei and Apple, the company expects a significant increase in orders. The automotive sector achieved revenue of 26.63 million yuan in Q3, +23.25% year-on-year, +14.02% month-on-month, with an average monthly revenue of 8 to 9 million yuan. Currently, the company is in the stage of continuing to expand customers in the automotive sector, and Q4 is expected to continue to improve.
The automobile business has entered a period of expansion, and the 65 billion market is opening up. The company's automotive coatings business is currently in the beginning and expansion stage. In June 2023, the revenue of the automotive sector exceeded 10 million, reaching a record high in a single month. With the implementation of several projects during the year, the company's automotive sector revenue is expected to increase significantly in 2023, and is expected to continue to grow in 2024. According to our estimates, the domestic automotive paint market is expected to be 64.2 billion in 2025, including 48.2 billion for body paint, 10 billion for parts, and 6 billion for repair paint. The company started with differentiated component coatings and has now entered the supply chain of core NEV companies such as BYD, NIO, Geely, GAC, and T Company. It is expected to move into markets such as body paint, etc., with huge room for growth. Recently, the company announced a convertible bond plan. It plans to raise no more than 620 million yuan in capital for the construction of automotive coatings and special resin projects (phase I) and supplementary working capital. The convertible bond fundraising project is the first phase of the Zhuzhou project. The overall investment of the Zhuzhou project is estimated at 2 billion yuan.
Investment suggestions: The company continues to expand product categories (paint → ink → adhesive) and downstream application scenarios (consumer electronics → automobile → special equipment). Moving from 10 billion to 100 billion to a market of 100 billion, providing the company with a lot of room for growth. Due to a slowdown in the pace of performance release in the company's automotive sector, the previous forecast was lowered. We expect the company's revenue for 2023-2025 to be 6.23/9.36/13.76 (previous value: 6.80/10.69/16.30) yuan, +24.8%/+50.3%/+47.0% year-on-year; net profit of 0.84/1.44/2.05 (previous value: 1.06/1.79/2.71) billion yuan, respectively, +2.6%/+70.5%/+42.1% year-on-year. The current stock price corresponding to P/E is 76/44/31x, respectively. Considering that the company's performance in the next 3 years is expected to usher in a high growth rate, and at the same time has the scarce attribute of import substitution on the track, we gave the company 50x P/E in 2024, with a target stock price of 64.5 yuan/share.
Maintain a “push forward” rating.
Risk warning: 3C demand for mobile phones, notebooks, etc. has failed to recover, new projects in the automotive sector have not progressed as expected, etc.