Matters:

The company released a performance forecast for 2023, and is expected to achieve net profit of $185-225 million for the full year of '23, +73.8%-111.4% year-on-year; net profit after deducting non-return to mother of $125 million to $150 million, or +41.6%-69.9% YoY.

Commentary:

The high increase in Q4 performance was mainly due to the growth of the electrolytic copper foil equipment business and the increase in the combined ratio of Hongtian Technology. Based on the median calculation, Q4 net profit for a single quarter was 140 million yuan, +234% year over month, +1181% month on month, net profit of 90 million before deducting non-return mother net profit, +226% year over year, and +695% month on month. The high increase in the company's Q4 performance over the same period last year was due, on the one hand, to a continued high increase in shipments of the electrolytic copper foil equipment business. On the other hand, the company's shareholding ratio in the subsidiary Hongtian Technology increased from 51% to 81% in August, and the ratio increased significantly. Non-recurring profit and loss for the full year of '23 is expected to be around 60 million, mainly from asset disposal proceeds from the sale of 100% of the shares of the subsidiary Suzhou Dawson Drilling & Production Equipment Co., Ltd., and government industry support subsidies.

The equity incentive target is to maintain high growth. In the company's recent equity incentive draft, the subsidiary Hongtian Technology's R&D, project commissioning, and operating income targets were assessed. Among them, the revenue assessment assessed that Hongtian Technology's 24/25 revenue was not less than 1.20 billion yuan, and the revenue growth target was more than 30%; we expect that with the delivery of the company's higher profit composite copper and aluminum foil equipment, Hongtian Technology's overall net interest rate level is expected to continue to rise.

The development of the composite copper foil dry process accelerated in 23 years, and the company's intended orders are expected to accelerate transformation. Composite fluid collection companies that were added to the dry coating process in '23: unlisted (Hanyu New Materials, Ammett, Lithium New Materials), listed companies (NORD Co., Ltd., Tony Electronics, Jinjia Co., Ltd.), and the dry process trend of composite copper foil is obvious. Hongtian Technology, a subsidiary of Dawson Co., Ltd., has confirmed an order of 250 million yuan for dry process equipment. With the launch of the company's Q1 all-in-one magnetic-controlled evaporation machine and evaporative aluminizing equipment in Q24, the company's intended orders are expected to accelerate transformation.

Investment suggestion: The company is a leader in electrolytic copper foil equipment and is successfully promoting composite fluid collector vacuum coating equipment, which is expected to create the company's second growth curve. Due to the company's completion of some asset sales in 23 and the slowdown in the commissioning of downstream electrolytic copper foil companies, we expect the company's net profit to be 2.0/3.7/4.7 billion yuan in 23-25 years (previous values were 2.0/5.1/680 million yuan, respectively), corresponding EPS of 0.98/1.76/2.27 yuan (previous values were 0.94/2.45/3.27, respectively). Considering that the company is the leader of electrolytic copper foil equipment and leading layout of composite liquid collector dry vacuum coating equipment, we give a target price of 44.1 times the 24-year performance 25 times Yuan, maintaining a “strong recommendation” rating.

Risk warning: demand for downstream production expansion falls short of expectations; new product development or promotion progress falls short of expectations; raw material price increases weaken profit levels; risk of a shortage of core components.