[Investment points]
Electronic ceramics expert, vertical integration development creates cost advantages. The company has been deeply involved in the field of electronic ceramics for more than 50 years, covering product lines including electronic component materials (MLCC, ceramic substrates, resistors, etc.), communication components (ceramic inserts, ceramic sleeves, etc.), semiconductor components (PKG, etc.), fuel cell components, etc. The industry chain is vertically integrated, with significant cost advantages and strong profitability.
MLCC: The industry is at the bottom of the cycle, high-end products continue to be released, and market share is rapidly expanding. From a cyclical perspective, MLCC is at the bottom of the industry cycle. It focuses on seizing the timing of reversal and focusing on changes in volume, price, delivery, and inventory. On the supply side, overseas giants occupy the mainstream market, and the share of mainland enterprises is low. The company's high-end products have the power to compete with leading international manufacturers and are expected to seize more market share. On the demand side, in the long run, new energy vehicles, data centers, etc. contribute additional volume, and industry orders are gradually improving. In the short term, the growth trend of the consumer electronics market is basically clear. Competitiveness, the company's MLCC is positioned in the middle and high-end markets. Compared with the low-end market, the middle and high-end market products are more profitable and the competitive pattern is more clear. At the same time, the company has many years of experience in R&D and production of electronic components and materials, so future growth can be expected; the company continues to expand high-end production capacity to better meet the needs of market share expansion. Growth. In the short term, the growth of the company's MLCC business is mainly due to the reversal of the cycle and the release of production capacity for high-end products. In the medium to long term, the company's growth is mainly due to the release of domestic replacement space and the increase in market share of high-end products.
The multi-business layout, such as PKG, optical communication components, and SOFC components, injects long-term growth impetus.
In terms of PKG business, it mainly follows changes in market demand such as downstream crystal oscillators. The industry was in a downward phase in '22. According to tripartite forecasts and cyclical changes, the crystal oscillator market will enter an upward phase, and the company's PKG business is expected to begin a growth cycle. In terms of the communication components business, changes in the consumer electronics and optical communication markets determine the direction of the business sector. We expect the consumer electronics market to gradually pick up. At the same time, due to the increase in the size of data centers, the market size of the optical communication industry is expected to continue to grow. The company is actively introducing various types of businesses such as ceramic ferrules and ceramic sockets, which is expected to benefit during the data center market expansion cycle. In the SOFC components business, the company has achieved business expansion from SOFC upstream diaphragm panels to SOFC power generation systems and application systems. Against the backdrop of an overall growth trend in the size of the fuel cell market, the company is expected to reap the double dividends of market share and market space growth.
[Investment advice]
With the end of the MLCC inventory removal stage, the industry will gradually enter an upward cycle, compounded by the continuous expansion of the company's new production capacity, we expect the company's 2023/2024/2025 operating income to be 56.58/74.44/8.891 billion yuan; estimated net profit of 15.76/20.72/2,535 billion yuan; EPS is 0.82/1.08/1.32 yuan; corresponding PE is 37/28/23 times, respectively. For the first time, coverage was given a “increase in holdings” rating.
[Risk Reminder]
Downstream demand fell short of expectations;
Competition in the industry heightens risks;
The volume of new products and new production capacity fell short of expectations.