Description of the event

MeiAir Technology released its 2023 performance report. It achieved full-year operating income of 1,504 billion yuan, a year-on-year increase of 22.54%, and net profit to mother of 173 million yuan, an increase of 40.73% year-on-year, after deducting non-net profit of 151 million yuan, an increase of 33.05% over the previous year.

Incident comments

Seize market opportunities, actively explore domestic and overseas markets, and drive steady revenue growth. In 2023, the revenue scale of the company's various business segments increased steadily compared to the previous year, and overall sales performance improved, leading to an increase in profit levels this year compared to the same period last year. Specifically, it is expected that the main reasons are: 1) the semiconductor industry is affected by technological competition between China and the US, and there are many new orders brought about by localization; 2) the domestic semiconductor industry continues to make breakthroughs, leading to a gradual rebound in domestic companies' capital expenditure; 3) As the company's customer coverage continues to increase, consumables sales continue to increase performance. Furthermore, in the context of carbon neutrality peaking, national policies are gradually tightening the control of air pollutants such as oil mist, dust, and VOCs generated during industrial production and processing. The company has developed a series of products to meet downstream demand, and customers have also gradually expanded into new energy industries such as Guoxuan Hi-Tech and Dangsheng Technology, forming a revenue growth point. At the same time, combined factors such as an increase in the company's wealth management income led to a large increase in net profit.

In the medium to long term, the company's gross margin is expected to continue to rise, and cash flow will continue to improve. The main reasons include: 1) In the company's current business structure, the share of revenue from consumables such as air filtration products is still not high. In the future, as the company continues to develop new customers, the increase in the share of consumables business will increase. The gross margin and cash flow of consumables products are superior to those of equipment products related to new construction business, such as air filter units; 2) Many of the company's executives have overseas backgrounds, and the company is also gradually developing overseas markets, and the gross margin of overseas customers is also relatively higher than that of domestic customers (overall gross margin of 27.52% in mainland China and 30.34% gross profit margin for foreign customers in the future) Achieving a continuous increase in revenue share will drive improvements in the company's overall gross margin and cash flow performance.

The comprehensive gross margin of 2023Q1-Q3 declined slightly by 1.0 pct. The reasons are: 1) the gradual increase in the share of consumables in the product structure led to a recovery in comprehensive gross margin, but since the share of consumables is still low, the impact of this factor is relatively weak; 2) the effects of cost reduction driven by the localization of the company's raw materials glass fiber and PTFE have not been shown for the time being; 3) downstream enterprises have high bargaining power, and the gross margin of consumables has declined due to fierce competition. Cash flow improved in the first three quarters, and there is still room for improvement in the future. The company's revenue ratio in the first three quarters was 90.0%, an increase of 5.1 pct over the previous year.

The expansion of production capacity will drive continued improvement in future performance. As trade friction between China and the US intensifies in the high-tech industry, the trend of localization and substitution in the semiconductor industry is gradually accelerating. Furthermore, the trend of the semiconductor industry moving to Southeast Asia is becoming more and more obvious. The company's current capacity utilization rate has continued to be saturated. As the fund-raising projects are gradually put into operation in batches, it is expected that the company's production and sales volume will grow steadily, thereby increasing the company's revenue and profits. In addition, Zaisheng Technology announced in July that it plans to sell 70% of its subsidiary Youyuan Environmental to MANN+HUMMEL Singapore Holdings (becoming a foreign-funded company). The domestic market competition pattern may improve after future transactions are completed. MayAir Technology's net profit for 2023-2024 is estimated to be 170 million yuan and 210 million yuan respectively. The current stock price is 26x and 21x for 2023 and 2024 PE, respectively, giving it a “buy” rating.

Risk warning

1. The fund-raising project falls short of the expected risk;

2. Overseas expansion falls short of anticipated risks.