Matters:
The company released its 2023 annual report. In 2023, it achieved revenue of 712 million yuan, yoy +7.51%; realized net profit of 174 million yuan, yoy -7.57%; deducted non-net profit of 150 million yuan, yoy +0.21%; and gross sales margin of 39.26%. 2023 profit distribution plan: A cash dividend of 5 yuan (tax included) will be distributed for every 10 shares.
Ping An's point of view:
Square and spherical powders maintained a small increase, and production and sales of other high-performance products increased, driving the company's overall revenue to continue to grow positively. By business, the company's square powder revenue in 2023 reached 233 million yuan, up 0.61% year on year, gross margin was 32.75%, down 2.66 percentage points year on year; production and sales volume of square powder was 711,000 tons and 70,600 tons respectively, up 4.53% and 3.02% year on year. Spherical inorganic powder achieved revenue of 369 million yuan, up 4.19% year on year, accounting for 51.84% of total revenue (down slightly from 53.49% in 2022), gross margin was 46.22%, up 3.17 percentage points year on year; production and sales volume of spherical powder was 26,500 tons and 25,800 tons, respectively, up 9.07% and 8.37% year on year.
Revenue from other products (spherical titanium dioxide, advanced nitride powder, etc.) was 109 million yuan, up 45.09% year on year, and gross margin was 29.48%, down 3.10 percentage points year on year; production and sales of other products were 4857.77 tons and 4797.91 tons, respectively, up 61.99% and 60.89% year on year.
Keep an eye on changes in the downstream industry and continue to lay out high-barrier products. With the rapid iteration of products in the fields of downstream epoxy encapsulants EMC/LMC/GMC, electronic circuit substrates, thermal interface materials, etc., the company continues to launch various specifications of low-α micron/sub-micron spherical silicon powder, spherical alumina powder, low-loss/ultra-low loss spherical silicon powder for high-frequency high-speed copper clad plates, high thermal conductivity micron/sub-micron spherical alumina powder for new energy batteries, etc. The company's current comprehensive product production capacity is about 150,000 tons/year (about 100,000 tons of square silicon plus 50,000 tons of spherical powder), and 23H2's new investment of 252,000 tons of electronic-grade functional powder materials is under construction. Compared with the same period, the new plan is to invest about 100 million yuan to lay out a R&D center project for advanced functional powder materials for ICs, and build a new 6,000 square meter R&D building and related ancillary facilities. The construction period is 2 years.
Increase investment in R&D and promote product structure upgrading. In 2023, the company's sales, management, R&D, and financial expense ratios were 1.50%, 6.92%, 6.66%, and -0.35%, respectively. Compared with 1.50%, 6.49%, 5.82%, and -1.21% in 2022, the main R&D expenses increased by 23.13% over the same period last year.
The company's gross sales margin in 2023 was 39.26%, a slight increase from 39.20% in 2022; the net sales margin was 24.45%, down from 28.44% in 2022.
Investment suggestion: The company is a leading producer of electronic grade silicon powder in China, leading in production capacity. At the same time, it has made breakthroughs in low-α spherical silicon powder and spherical alumina powder, which have high barriers for packaging high thermal conductivity memory chips. In the future, a new 252,000 ton large-scale electronic grade functional powder project for integrated circuits will be completed and production capacity released, and the company's leading position in this field will be further consolidated. Due to beta repair in the semiconductor industry and alpha resonance on the silicon powder circuit, the company's performance is expected to return to positive double-digit growth. It is expected to achieve net profit of 2.34 billion yuan and 303 million yuan from 2024 to 2025 (down from the original 2.62 and 321 million yuan, mainly considering the current state of recovery in the semiconductor industry and the reduction in the company's product price recovery rate), adding an estimated net profit of 400 million yuan to 2026, corresponding to PE 34.4, 26.6, and 20.1 times respectively on March 25, 2024. I am optimistic about the gradual release of the company's production capacity and product upgrades and iterations. It is expected that volume and price will rise sharply in the next 2-3 years and maintain the “recommended” rating.
Risk warning: 1. Downstream demand falls short of expectations. If demand growth in terminal industries such as 5G, AI, cloud computing, and consumer electronics slows down, semiconductor fundamentals are difficult to repair or the inflection point is delayed, the growth rate of demand for integrated circuit packaging materials, copper-clad plates, etc. falls short of expectations, and the company's silicon powder sales and sales prices may not return to growth. 2. The risk of slowing down the project process. If the company's products being developed and projects under construction are delayed due to factors such as technical bottlenecks or a slowdown in facility construction, it will have a negative impact on the company's performance growth, and the competitiveness of related products may also decline. 3. Risk of fluctuations in raw material prices. 4. Accelerate the release of risks in the industry's production capacity. 5. Measure the risk of subjective bias.