In the third quarter of 2023, Shihua Technology's revenue increased steadily. In the first three quarters of 2023, the company achieved total operating income of 390 million yuan, an increase of 10.23% over the previous year, and realized net profit of 155 million yuan, an increase of 9.06% over the previous year. In the third quarter of 2023, the company achieved revenue of 177 million yuan, a year-on-year increase of 0.86%, an increase of 35.10% over the previous year, net profit of 75 million yuan, a year-on-year increase of 0.78%, and a year-on-month increase of 52.75%.
Innovate electronic composite functional materials and optoelectronic materials, and optimize product structure. The company's main functional materials include three categories: electronic composite functional materials, photoelectric display module materials, and precision process application materials. (1) Electronic composite functional materials contribute to the core growth driving force. From 2020 to 2023H1, the growth rate of the electronic composite functional materials business was 73.30%/86.03%/24.92%/40.76%, respectively. The business's revenue share increased from 41.98% to 81.34%. Furthermore, the gross margin level of electronic composite functional materials is high, contributing a high degree of profit to the company; (2) The company's optoelectronic display module materials are mainly used for OLED and LCD modules. 23H1 achieved the official sales of new customers. Furthermore, the company's planned The new high-speed production line has arrived at the factory for installation and will soon be put into use. (3) Competition in the precision process applied materials industry is incentivized, and downstream customers are highly price sensitive, leading to a decline in revenue and gross margin.
A fixed increase in the layout of high-efficiency sealant materials, and the seed business is accumulating new growth points. High-efficiency sealants are a seed business created by the company, and will become a new growth curve for the company in the future. High-efficiency sealant materials are widely used in new energy vehicles, consumer electronics, automotive electronics, etc., and demand for such products has continued to expand in recent years. At the beginning of 2023, the company completed a fixed increase and plans to invest 300 million yuan to build a new high-efficiency sealant project. According to the company's announcement, production of the high-efficiency sealant project is expected to reach 10% in the 3rd year of the construction period. As production capacity gradually increases, production is expected to be fully achieved in the 8th year, and the project can increase revenue by about 920 million yuan during the production year.
The demand space for major customers is vast, and there are many opportunities for consumer electronics and wearable devices. The company has cooperated with customer A for many years. The company's functional materials are used in customer A's mobile phones, tablets, wearable devices, laptop and other products. According to company estimates, customer A has at least 10 billion yuan in demand for functional materials. Currently, it is mainly dominated by foreign material giants. The company's share is small, and there is plenty of room for improvement in the future. Furthermore, as the consumer electronics industry picks up in 2024 and customer A's new products are launched, we expect the company's performance to benefit next year.
[Investment advice]
Shihua Technology's revenue and profit increased steadily in the first three quarters. Short-term, the company's new customers of optoelectronic materials and new production lines will increase in performance after the completion of new production lines. In the medium term, benefiting from the recovery of downstream consumer electronics, the boom in automotive electronics, and deepening cooperation with major customers, long-term high-efficiency sealant materials are expected to become a new growth point for the company's performance. Therefore, we expect that in 2023-2025, the company's revenue will be 573/68/727 million yuan, net profit will be 2.34/2.70/299 million yuan, and EPS will be 0.89/1.03/1.14 yuan, corresponding PE will be 20/18/16 times, giving it an “increase in holdings” rating.
[Risk Reminder]
The recovery of downstream consumer electronics fell short of expectations, and the industry cycle continued to decline;
the risk of iterative technology updates;
the risk that the construction of a fund-raising project falls short of expectations;
Risk of fluctuations in the prices of major raw materials.