Event: The company released its 2023 annual report. In 2023, the company achieved revenue of 1,550 billion yuan, a year-on-year decrease of 16.80%; realized net profit of 171 million yuan, a year-on-year decrease of 17.18%; and realized net profit of 161 million yuan after deduction, a decrease of 20.00% over the previous year. With 2023Q4, the company achieved revenue of 371 million yuan in a single quarter, down 7.28% year on year and 4.52% month on month; realized net profit of 49.5 million yuan, up 140.78% year on year and 5.32% month on month.
Weak semiconductor demand compounded the decline in rare gas prices, putting pressure on the company's performance in '23. In 2023, due to the slump in the overall semiconductor industry environment and weak demand for semiconductor materials, some semiconductor material manufacturers, represented by the company, experienced a decline in revenue. In 2023, the company's specialty gas revenue was RMB 1,023 million, a year-on-year decrease of 22.67%.
Among them, due to falling rare gas prices, the company's photolithography and other mixed gas revenue fell 57.73% year-on-year to 253 million yuan in 2023. However, it is worth noting that although the company's product revenue has declined, the gross margin of the company's specialty gas and general industrial gas business increased by 5.32 pct and 1.62 pct, respectively, in 2023, thanks to the increase in sales share of high-value-added products and the decline in raw material costs. In terms of expenses, the company's sales/management/R&D/finance expenses rates in 2023 were 5.83%/5.93%/3.36%/1.60%, respectively, an increase of 1.16/0.82/0.03/2.00pct year-on-year, respectively.
Continue to promote product introduction and expand the layout of the industrial chain and supply base. In terms of customer introduction, after a long period of product development and certification, the company successfully achieved customer coverage of more than 90% for domestic IC manufacturers above 8 inches. The company's products have been supplied in batches to 14nm, 7nm and other production lines, while some fluorocarbon and hydride products have been used in 5nm advanced processes. In terms of complementing the industrial chain, on the one hand, the company continues to promote the upstream extension of the industrial chain and gradually accelerate the pace of autonomy in more categories of materials; on the other hand, the company extends from small categories to large categories to improve the entire industry chain layout of large single-product fluorocarbon and silicon-based products. In terms of building new production bases, the company used convertible bonds to raise capital to build a production base in Jiangxi. The company is also planning new production bases in Nantong, Jiangsu and Zigong, Sichuan, respectively. With the full completion of the above production base, the company's specialty gas category and customer coverage will be greatly expanded. Furthermore, the company will significantly enhance the company's overseas sales capacity through wholly-owned acquisition of a Singaporean subsidiary and investment in on-site gas production projects in Thailand.
Profit forecasting, valuation and ratings: In 2023, due to weak demand in the semiconductor industry and falling rare gas prices, the company's specialty gas revenue declined, putting temporary pressure on performance. In view of the fact that demand for semiconductors has yet to recover and that progress in the release of the company's new products has been delayed, we have lowered our 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is estimated to be 2.35 (down 23.7%)/3.27 (19.7% decrease)/414 million yuan, respectively. With the continuous introduction of the company's new products and the implementation of new base construction projects, the company's market position and market share in the specialty gas industry will be further enhanced, and business revenue and profit are expected to resume a high growth rate and maintain the company's “gain” rating.
Risk warning: downstream demand falls short of expectations, customer verification risk, capacity construction risk.