Huaguang New Materials released its 2023 annual report. In 2023, the company achieved operating income of 1,415 billion yuan, a year-on-year increase of 15.96%, and deducted non-net profit of 35 million yuan from mother, an increase of 3192.92% over the previous year.
The increase in net profit in 2023 is mainly due to the fact that in 2023, the company actively expanded new circuits such as electronics and new energy vehicles on the basis of consolidating the fields of refrigeration, HVAC, power and electricity, etc., to achieve an increase in operating income. At the same time, the price of raw silver stabilized, and the company's profit level was repaired. 1) In terms of operating revenue by product, the company's cumulative revenue of silver solder, copper-based solder, silver paste and other materials increased by 18.89%, 5.45%, and 100.23% to 6.90, 6.17, and 103 million yuan respectively in 2023. 2) Looking at gross margin by product, the gross margins of the company's silver solder, copper-based solder, silver paste and other materials changed by 5.24, 0.87, and -3.79 percentage points to 16.65%, 9.37%, and 5.12% respectively in 2023. 3) The three cost rates increased 0.62 percentage points year over year to 10.09%.
Among them, sales, management, finance, and R&D expenses increased 0.17, 0.07, 0.29, and 0.09 percentage points year-on-year to 1.34%, 2.98%, 2.02%, and 3.75%.
The company actively promotes the construction of new investment projects, makes technical improvements, and develops new products. 1) The “New Connection Materials and Process R&D Center Construction Project” was scheduled to be ready for use in December 2023. 2) The “Technical Improvement Project for Green and Environmentally Friendly Tin-based Solder with an Annual Output of 550 Tons” and the “Technical Improvement Project for New Brazing Materials with an Annual Output of 100 Tons” were scheduled to be ready for use in February 2023. 3) The “Intelligent Manufacturing and Construction Project for New Green Brazing Materials with an Annual Output of 4000 Tons” will reach the scheduled state of use in December 2024.
The company has technological innovation advantages, multi-product advantages, high-quality and stable customer resources, strong market development capabilities, technical service advantages, and management advantages. 1) The company already has strong product formulation research and process innovation capabilities, and also has complete and advanced processing equipment, forming an industry-leading technical system integrating formula research and development, production process control and quality inspection. 2) While consolidating the dominant position of medium temperature solders, the company is actively expanding new technologies and products in the fields of electronic paste, soft solder and high temperature solder, with the goal of achieving full coverage of all types of brazing materials. 3) The company continues to implement a share repurchase plan, actively protects the company's value and shareholders' rights, and uses the repurchased shares for equity incentives for future employees to stimulate the company's endogenous motivation in multiple dimensions and lay the foundation for the company to achieve continuous performance growth.
Profit forecasting and investment ratings. Due to the decline in gross margin, we expect the company's EPS in 2024-2026 to be 0.71, 1.02, and 1.18 yuan respectively (the original forecast for 2024-25 was 0.96 yuan and 1.38 yuan). Referring to the valuation of comparable companies in the same industry, we think a reasonable valuation is 35 times PE in 2024, corresponding to a target price of 24.85 yuan (original target price 22.75 yuan, 35 times PE in 2023, +9%), maintaining the “better than the market” rating.
Risk warning: Production capacity investment under construction falls short of expectations; macroeconomic decline; raw material market prices fall.