The company publishes its 2023 annual report. In 2023, the company achieved revenue of 1,845 billion yuan, +88.7% year on year, net profit of 133 million yuan, +2.0% year on year, net profit after deducting non-return to mother of 112 million yuan, +2.7% year on year; Q4 achieved revenue of 435 million yuan, -16.3% year over year, net profit to mother of 30 million yuan, -11.6% year on year, net profit of non-return to mother of 0.31 million yuan, -7.3% year on year. Looking at the company's profit split, the sawing business achieved a profit of 156 million yuan, an increase of 16.56% over the previous year. The power supply business lost 26 million yuan because high-power power supplies were still being invested on a large scale. The company's performance is basically in line with our expectations. We expect the company to expand its high-power power supply business and build a power platform enterprise.
Sawing business: Steady growth, and there is still room to increase market share. The company's sawing business achieved revenue of 670 million yuan in 2023, an increase of 7.47% over the previous year, and realized profit of 156 million yuan, an increase of 16.56% over the previous year.
(1) There is room for market share increase: In 2023, the company's bimetallic band saw blade sales accounted for about 35% of the domestic market, ranking first in the domestic market and the top three in the world, but the leading market share in mature markets such as Europe, America, and Japan all accounted for more than 50%. In the context of the gradual transfer of global production capacity to China, the company is a leader in China, relying on first-mover advantages, channel advantages, product quality and cost performance advantages, and there is still a lot of room for improvement in market share.
(2) Product structure upgrade: The company's product structure is continuously optimized, and the proportion of middle and high-end products continues to increase. In 2023, high-end products accounted for 62% of sawing revenue, accounting for +9.6pct. Among them, the share of hard alloy band saw blades increased by 1.6 pct; the proportion of broadband saw blades increased by 2.9 pct. The gross margin of the company's high-speed steel bimetal band saw blades is close to 40%, and the gross margin of hard alloy band saw blades exceeds 50%. With the upgrading of the product structure, the company's profitability is expected to increase further.
(3) Collaboration with Metson: The company integrated and empowered Metson in terms of capacity layout, manufacturing capacity, marketing network, supply chain management, and technology research and development. In 2023, Metson achieved revenue of 93 million yuan, an increase of 42.5% over the previous year.
Yada: The manufacturing advantage is obvious, and we look forward to the rapid expansion of the high-power power supply business. In 2023, the power supply business achieved operating income of 1.17 billion yuan and a loss of 26 million yuan. Yada was founded in Hong Kong in 1971 and has a brand history of 50+ years. It was once a wholly-owned subsidiary of Emerson (Emerson), a leading global power supply industry leader. Its customers are widely distributed in the fields of consumer electronics, semiconductor equipment, communications, manufacturing, data centers and medical care. Its main customers include Huawei, Apple, HP, and American Advanced Energy.
(1) Consumer electronics power supplies: In 2023, consumer electronics power supplies achieved revenue of 1.03 billion yuan, with a gross margin of 4.5%. The consumer electronics demand side continued to be sluggish in 2023. According to IDC data, global smartphone shipments in 2023 hit their lowest level in 10 years, with a year-on-year decrease of 3.2%. And with the rise of AI, major manufacturers are speeding up the promotion of AI phones, which may become an important driving force for the transformation of the mobile phone industry. The company is based on the big customer strategy. As the industry recovers and major customers launch new products and end inventory clean-up, the company's capacity utilization rate and profit situation are expected to improve.
(2) High-power power supplies: In 2023, high-power power supplies achieved revenue of 140 million yuan, with a gross margin of 2.1%.
Relying on Yada's leading domestic power supply manufacturing platform, the company has built a high-power power supply R&D team, actively expanded high-power power supply industry opportunities, and built a full range of power supply businesses. The company takes high-power power supplies as an important development direction, and is vigorously expanding product lines such as photovoltaic inverters, photovoltaic optimizers, energy storage converters, server power modules, household DC charging piles, and fast charging power modules. Based on the construction of AIGC and Huawei computing power centers, the country has ushered in an era of high computing power, and the company's data center power supply business is expected to benefit deeply. Profitability was briefly under pressure due to investment and construction of high-power power supply business production lines, low capacity utilization, and factors such as recruitment of new high-power power supply business employees, investment in R&D, and increased depreciation and amortization of fixed assets. Currently, the company's on-hand orders are guaranteed. In the future, with the orderly release of production capacity of the company's high-power power supplies and other production lines, and on-hand orders are delivered one after another, the company's power supply sector performance will continue to improve.
Investment advice: We expect the company to achieve net profit of 250, 350, and 450 million yuan in 2024-2026, corresponding PE of 19, 14, and 11X. The company's main cutting business is growing steadily, and Yada has excellent manufacturing capabilities. It is expected to build a leading domestic power platform enterprise and maintain a “buy” rating.
Risk warning: The downstream market demand for the sawing business falls short of expectations, and the expansion of the power supply business falls short of expectations.