Incident: The company released its 2023 annual report. The company achieved revenue of 1,676 billion yuan in 2023, or -33.02% year-on-year, and realized net profit of 272 million yuan, or -66.15% year-on-year.
Key points of investment
The downstream market boom in the electronic components industry is weak, and it is expected to recover in the medium to long term: the company will face certain operating challenges in 2023. Achieved revenue of 1,676 billion yuan, a year-on-year decrease of 33.02%. The main reason was that the company's performance declined due to falling downstream demand, continued sluggish customer demand, sales volume and price declines, and sales revenue from major customers in the superposition business declined. Net profit to mother was 272 million yuan, -66.15% over the same period. The reason was that the company actively invested in new businesses such as microprocessors and microwave modules, maintained high R&D expenditure, strengthened talent introduction, steady growth in the number of employees, stable remuneration, and a slight increase in labor costs. In the context of the industry, gross margin fell 19.20pct year over year to 40.52% in 2023.
However, by the end of 2023, operating cash flow had increased 29.58% year over year to 463 million yuan, and the company's liquidity management had improved.
Equity incentives did not meet the conditions for unlocking, and Hongyuan Innovation Research Institute was established to continue to promote scientific research and innovation: the company's 2021 restricted stock incentive plan assessment target was not achieved, and all 283,200 restricted shares were repurchased and cancelled on June 16, 2023. In 2023, Hongyuan Innovation Research Institute was established as the core of the company's scientific and technological innovation, focusing on basic, common technology and forward-looking R&D to promote technology development and product incubation. In the same year, technological progress was showcased at a national conference to promote the application of new technologies and industrial chain cooperation. Honganxin also established the Micro-Nano System Integration Technology Innovation Research Institute to focus on research on integrated materials and packaging technology for micro-nano electronic systems to support related technical solutions and products. The company continues to deepen the layout of the industrial chain and open up room for long-term growth.
Defense informatization construction releases demand and strengthens the leading position in the industry with a high entry threshold: electronic components are the cornerstone supporting the development of the information technology industry, and the downstream production of the company's own business is concentrated in the fields of aerospace, aviation, electronic information, weapons, etc. Due to high entry thresholds and strict requirements for product quality and reliability, competition in the domestic high-reliability MLCC market is stable, and industry concentration is high. As a major producer in this field, the company has a clear leading position in the industry with significant advantages in industrial chain integration, technology research and development, production and quality assurance, product testing, core customer resources, and customer service. Electronic components, as essential and widely used basic electronic components, are being used on a large scale in the military electronics industry, and demand continues to grow.
Profit forecast and investment rating: The company's performance is in line with expectations. As the core supplier of MLCC for military use in China, the MLCC business continued to boom or ushered in restorative growth, and the development of the non-MLCC business continued to improve, and the second growth curve gradually became clear. Considering the pace of downstream equipment deployment, we predict that the company's net profit for 2024-2026 will be 3.41 (-7.80) /6.99 (-5.86) /797 million yuan respectively, corresponding to PE of 24/12/10 times, respectively, maintaining a “buy” rating.
Risk warning: 1) downstream demand and order fluctuations; 2) company profits fall short of expectations; 3) market systemic risk.