Incident: The company announced its 2023 performance forecast. It is expected to achieve annual revenue of 51.5-6.18 billion yuan, an increase of 0% to 20%; it is expected to achieve net profit of 14.3-1.66 billion yuan, which is -5 %-10% year-on-year; and realized net profit after deduction of about 10.4-1.31 billion yuan, or -15% -7% year-on-year.

The Q4 results were mixed with expectations, with significant year-on-year improvements. According to the performance forecast, the company expects to achieve operating income of 1,04-2.07 billion yuan in the 23Q4 single quarter, and net profit to mother of about 29-51 million yuan. Based on the median forecast, the 23Q4 single quarter is expected to achieve operating income of 1.56 billion yuan, a slight increase of about 5.5% over the previous year, and an increase of about 30% over the previous year; net profit to mother is expected to be 400 million yuan, a slight decrease from the previous month, and an increase of about 53% over the previous year. Looking at the full year of 2023, the company's revenue grew steadily, mainly benefiting from the gradual recovery of demand in the downstream industry, combined with technological breakthroughs and quality improvements in the company's products, and a steady recovery in orders for some products. Among them, the coverage of the downstream application areas of the company's MLCC business increased, and revenue growth was impressive year-on-year.

MLCC business: Industry prosperity improved marginally, and the company's continuous release of high-capacity products helped achieve a sharp rise in volume and price.

At the industry level, the overall price of MLCC stabilized in 2023, and inventory levels returned to a relatively healthy level. The industry has shown signs of marginal improvement, waiting for the recovery of downstream demand to drive the industry into the next upward cycle. At the company level, the company's fixed growth project is progressing smoothly. With the continuous release of high-capacity MLCC production capacity, the company is expected to open up new incremental space in the MLCC business and achieve a sharp rise in volume and price; benefiting from the steady increase in the share of high-capacity products, the company's profit level is expected to rise. The company's MLCC products continue to develop in the direction of higher volume, miniaturization, and high reliability. Verification of automotive-grade products is progressing smoothly, and existing products are successfully introduced into the automotive supply chain; small-sized products are also continuously breaking through, and some models are being delivered in batches. With the restoration of downstream demand, combined with the optimization of the company's product structure and the increase in production capacity and operating rate, the MLCC business can be expected to continue its high growth trend.

Traditional businesses are gradually picking up, and new businesses are progressing smoothly. The company's traditional ceramic insert business ranks first in market share. As demand for IDC and 5G base station construction picks up, the business is expected to directly benefit; the company can break the technological monopoly of overseas companies in the field of ceramic packaging substrates through self-research, repair downstream crystal oscillator demand, and benefit from the trend of localization substitution, and is expected to accelerate market introduction. In addition, the company's new businesses such as aluminum nitride ceramic substrates and fuel cell diaphragms are progressing smoothly and are developing well, and its contribution to future performance is expected to gradually increase.

Profit forecast and investment advice: The company's net profit to mother is estimated to be 15.3/21.10/2.78 billion yuan in 2023-2025. Considering the impressive growth of the MLCC industry and the vast space for domestic replacement, the company, as a platform-based electronic ceramics company, has a clear competitive advantage in terms of industrial chain layout, cost and price. The volume of high-capacity products is progressing smoothly, and the share is expected to continue to increase. The company was given 30 times PE in 2024, corresponding to a target price of 32.9 yuan, and a “buy” rating.

Risk warning: the schedule of fixed growth projects does not meet expectations; downstream demand picks up or falls short of expectations; industry competition increases risk.