Incident: The company released its 2023 annual report. During the reporting period, it achieved operating income of 712 million yuan, up 7.5% year on year, net profit of 174 million yuan, down 7.6% year on year, after deducting 150 million yuan in non-net profit, up 0.2% year on year; of these, the fourth quarter achieved operating income of 201 million yuan, up 15.3% year on year, 2.1% year on year, up 2.1% year on month, after deducting non-net profit of 43 million yuan, up 32.6% year on year and down 6.1% month on month. At the same time, the company announced that it plans to invest 100 million yuan to build a research and development center for advanced functional powder materials for ICs; and 129 million yuan to invest 129 million yuan in an ultra-fine spherical powder production line for advanced integrated circuits.

The product layout structure has been continuously improved, and the proportion of high-end products has increased. During the reporting period, the company kept a close eye on trends in downstream fields such as EMC, LMC, UF, electronic circuit substrates, thermal interface materials, etc., and continued to launch various low-CUT point Lowα micron/sub-micron spherical silicon powder, spherical alumina powder with low cut-point specifications, low loss/ultra-low loss spherical silicon powder for high-frequency high-speed copper clad plates, and high thermal conductivity micron/sub-micron spherical alumina powder for new energy batteries. The sales volume of spherical products continued to increase. The company's angular inorganic powder revenue was 233 million yuan, up 0.61% year on year, gross profit margin was 32.75%, down 2.66 pct year on year, sales volume 70,600 tons, up 3.02% year on year, average sales price was 3303 yuan/ton, down 2.34% year on year; spherical inorganic powder revenue was 369 million yuan, up 4.19% year on year, gross profit margin was 46.22%, up 3.17 pct year on year, sales volume 25,800 tons, up 8.37% year on year, sales price was 14,300 yuan/ton, down 3.86% year on year. High-end The proportion of products has increased.

Focus on high-end product development, and new projects to further meet market needs. During the reporting period, the company continued to focus on advanced technologies in downstream applications such as high-end chip (AI, 5G, HPC, etc.) packaging, heterogeneous integrated advanced packaging (Chiplet, HBM, etc.), next-generation high-frequency high-speed copper clad plates (M7, M8, etc.), high thermal conductivity interface materials for new energy vehicles, advanced millimeter wave radar, and photovoltaic cell adhesives. The company plans to invest 128 million yuan to build an electronic-grade functional powder material project with an annual output of 25,200 tons, and plans to invest 129 million yuan to implement an ultra-fine spherical powder production line project with an annual output of 3,000 tons for advanced integrated circuits. The completion of the construction will continue to meet the increasingly higher characteristic requirements of electronic grade functional powder materials for integrated circuits in application fields such as high-frequency high-speed substrates for 5G communications, IC carrier boards, high-end chip packaging, etc., and continuously improve the production capacity layout of the company's spherical products.

There is plenty of room for domestic replacement of spherical silicon powder, and the prospects for developing new products are broad. Japanese companies account for 70% of the global spherical silicon powder market. Japan's Yadoma has a monopoly on the spherical silicon powder filler market below 1 micron, and there is plenty of room for domestic replacement. The development of the AI industry drives HBM emissions, which will cause problems of increased packaging height and high heat dissipation requirements. Granular packaging materials (GMC) require the addition of spherical silicon below TOP CUT 20um and Lowα spherical aluminum. Some of the company's customers are world-renowned GMC suppliers, supplying spherical silicon and Lowα spherical aluminum used in HBM packaging materials GMC. The company strengthens research and development of functional powder materials such as high-performance spherical titanium dioxide and advanced nitride powders, and has good development prospects.

Maintain a “Highly Recommended” investment rating. From 2024 to 2026, the company's net profit is estimated to be 223 million, 276 million yuan, and 342 million yuan, EPS is 1.20, 1.48, and 1.84 yuan respectively. The current stock price corresponds to PE of 36, 29, and 24 times, respectively, maintaining a “highly recommended” rating.

Risk warning: Energy costs are rising, new projects are being put into production below expectations, and downstream demand falls short of expectations.