2023 results slightly below market expectations
The company announced its 2023 results, achieving revenue of 150 billion yuan, -16.8% YoY (adjusted caliber); net profit to mother of 171 million yuan, -17.0% YoY (adjusted before caliber), corresponding to earnings of 1.43 yuan per share, slightly lower than market expectations. Of these, 4Q23 achieved revenue of 371 million yuan and net profit of 49 million yuan to mother.
The company believes that the main reason for the decline in performance in 2023 is the sluggish semiconductor industry, the decline in rare gas prices, and the increase in interest costs on convertible bonds. In 2023, the company's specialty gas business revenue fell 22.7% year on year, with lithography and other gas mixtures falling 57.7%.
Development trends
The semiconductor industry gradually recovered in 2023 and may continue to improve in 2024. Global semiconductor industry sales were sluggish in early 2023, but there was a strong rebound in the second half of the year. According to SIA and WSTS data, global semiconductor industry sales in 2023 totaled $526.8 billion, YoY -8.2%; however, 4Q sales were US$146 billion, QoQ +8.4%, and YoY +11.6%. In 2024, we expect the global semiconductor industry to recover.
Research and development continues to be increased, and Walt's new products continue to be mass-produced. By the end of the reporting period, the company had achieved import substitution of more than 55 products, and 57 research projects, accounting for the main proportion of product projects used in etching processes in research projects. In 2023, the company launched 4 new electronic grade products, 1 gas mixture, 1 new fluorocarbon product, and 2 hydrides. Germanium, a product of the entire industry chain developed independently by the company, has passed the certification and generated orders for the 5 nm process production line of the largest memory company in Korea.
Accelerate overseas deployment. The company set up a company in Thailand in 2022, mainly investing in on-site gas production business as an entry point to enhance customer recognition through the regional advantages of overseas companies and the advantages of the company's specialty gas products. Currently, the company's on-site gas production projects in Thailand have increased to 3. In 2023, the company built on its original overseas customers and further strengthened its international layout. Through the acquisition of overseas companies, various products empowered the company have passed the certification of “3D NAND manufacturers” in Singapore. In order to cover the Southeast Asian market more fully, the company invests in Malaysian companies and has connected the Southeast Asian market through this layout.
Profit forecasting and valuation
The semiconductor industry is recovering weakly. We lowered our 2024 profit forecast by 11% to 251 million yuan, and introduced a 2025 profit forecast of 342 million yuan for the first time. The current stock price corresponds to 21/15 times the price-earnings ratio for 2024/25. Maintain outperforming industry ratings. Considering the reduction in performance and the decline in sector valuation, we lowered our target price by 20% to 60.0 yuan, which corresponds to 29/21 times the 2024/25 price-earnings ratio, and there is 37% upside compared to the current stock price.
risks
Progress in increasing the company's market share falls short of expectations; expansion of wafer production capacity falls short of expectations; industry competition intensifies.