Incident: The company released its 2023 annual report. The company achieved annual revenue of 710 million yuan, a year-on-year increase of 7.5%, achieved net profit attributable to the owners of the parent company of 170 million yuan, a year-on-year decrease of 7.6%, achieved net profit attributable to the owners of the parent company after deducting non-recurring profit and loss of 150 million yuan, an increase of 0.2% year on year; achieved basic earnings per share of 0.94 yuan, a year-on-year decrease of 6.9%.

The proportion of high-value-added spherical silicon powder increased, driving performance improvement. The company's revenue grew steadily throughout the year. The reason was that demand for consumer electronics terminals began to slowly recover in the second half of the year. Coupled with the company's active promotion of product structure transformation and upgrading, the share of high-end products increased, and revenue increased. Net profit attributable to mother fell 7.6% year over year due to factors such as increased R&D expenses, reduced exchange earnings, and increased depreciation expenses. By business, in 2023, the company sold 71,000 tons of square inorganic powder, up 3% year on year, achieving revenue of 230 million yuan, up 0.6% year on year, gross profit margin of 32.8%, down 2.7 pp year on year; sales of spherical inorganic powder were 26,000 tons, up 8.4% year on year, achieving revenue of 370 million yuan, up 4.2% year on year, gross profit margin of 46.2%, up 3.2 pp year on year.

The industrial chain bottomed out in '23, and the company seized the opportunity to launch new products. The first quarter of 2023 was affected by inventory accumulation downstream of the 2022 industrial chain, and the pressure was obvious; since the second quarter of 2023, the industrial chain has bottomed out and recovered. According to SIA statistics, sales in the global semiconductor industry have maintained a month-on-month increase for 8 consecutive months since March 2023. At the same time, the development of AI and other technologies is bringing about a new round of technological innovation, and is expected to accelerate recovery in some terminal fields, accelerate the development of advanced packaging materials, high-frequency high-speed substrates, carrier boards, thermal conductive materials, etc., thereby driving demand in the upstream materials sector. In 2023, the company will keep abreast of trends in downstream fields such as EMC, LMC, GMC, UF, electronic circuit substrates, thermal interface materials, etc., and continue to launch a variety of low-CUT point Lowα micron/sub-micron spherical silicon powder, spherical silica 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 continues to increase.

Further expand the production of high-end powders and improve the production capacity layout for spherical products. On March 25, 2024, the company announced that it plans to build an ultra-fine spherical powder production line for advanced integrated circuits, with an investment of 129 million yuan. The project site is located in Lianyungang Economic Development Zone, Jiangsu Province, with a production capacity of 3,000 tons/year and a construction period of 12 months.

With the development of emerging technologies such as 5G communication, AI, and HPC, markets such as high-frequency high-speed substrates, IC carrier boards, and high-end chip packaging materials for 5G communications have ushered in good development opportunities. At the same time, requirements for various characteristics such as small particle size, precise control of large particles, and surface modification are put forward for electron-grade ultrafine spherical powders for integrated circuits to meet the market and performance requirements of high-end products. After completion, the project will continue to meet customer needs in the fields of high-frequency high-speed substrates, IC carriers, and high-end chip packaging materials for 5G communications, continuously improve the production capacity layout of the company's spherical products, and further expand the production capacity of spherical powder materials.

Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 888 million yuan (+23.4%), 1,014 million yuan (+15.5%), and 1,144 million yuan (+12.8%), net profit to mother of 230 million yuan (+32.8%), 290 million yuan (+24.1%), and 340 million yuan (+19.3%), EPS is 1.24 yuan, 1.54 yuan, 1.84 yuan, and corresponding dynamic PE is 34 times, 27 times, and 23 times, respectively. The 2024 valuation was 42 times, and the corresponding target price was 52.08 yuan, which was covered for the first time to give a “buy” rating.

Risk warning: Project commissioning falls short of expected risk, downstream demand falls short of expected risk, product development progress falls short of expected risk, risk of exchange rate fluctuations.