Description of the event
Recently, Dinglong Co., Ltd. announced its 2023 annual report. In 2023, the company achieved revenue of 2,667 billion yuan, a year-on-year decrease of 2.00%; realized net profit of 222 million yuan, a year-on-year decrease of 43.08%; realized deducted non-net profit of 164 million yuan, a year-on-year decrease of 52.79%; gross profit margin of 36.95%, a year-on-year decrease of 1.14 pct; and a net profit margin of 8.32%, a year-on-year decrease of 6.01 pct. 2023Q4 achieved revenue of 795 million yuan, an increase of 11.42% over the previous year; realized net profit of 0.46 million yuan, a decrease of 43.09% from the previous year and a decrease of 51.99% year on year; realized deducted non-net profit of 35 million yuan, a decrease of 43.09% month on month and a decrease of 55.63% year on year; gross profit margin 39.70%, up 0.76 pct month on month, up 2.07 pct year on year; net profit margin to mother 5.76%, a decrease of 5.51 pct month over year, a decrease of 6.68 pcts year on year.
Incident comments
The 2023Q4 semiconductor business achieved high growth. In 2023, the company's semiconductor business (including semiconductor materials business and integrated circuit chip design, etc.) had revenue of 857 million yuan, an increase of 18.82% over the previous year, accounting for 32.12% of revenue. Among them, revenue from CMP polishing pads, CMP polishing/cleaning liquid, and display materials was 418 million yuan, 77 million yuan, and 174 million yuan respectively, with year-on-year growth rates of -8.65%, +330.84%, and +267.82%, respectively. The 2023Q4 semiconductor business showed a clear recovery trend. Revenue from CMP polishing pads, CMP polishing liquid/cleaning liquid, and display materials was 149 million yuan, 29 million yuan, and 67 million yuan respectively, up 49.21%, 294.61%, and 174.86% year-on-year respectively, and increased 25.68%, 32.96%, and 17.46%, respectively, accounting for 36%, 38%, and 38% of annual revenue. Some of the company's new products are expected to maintain the growth trend in 2024.
The high-end wafer photoresist business is progressing rapidly. The construction of the company's Qianjiang Phase I small-scale photoresist mass production line was basically completed, and construction of the Qianjiang Phase II 300-ton photoresist mass production line also began in the second half of 2023. At present, the company has deployed 16 mainstream wafer photoresists that have not broken through in China, including 8 high-end KrF photoresists and 8 submerged ArF photoresists (including 4 negative imaging immersion ArF photoresists), all of which are models actively commissioned by customers. Customer samples for 7 products have been completed, including one extreme resolution KrF photoresist and one extreme resolution ArF photoresist. The test results have all been unanimously approved by customers; the rest of the products are scheduled to be sampled by customers in 2024.
Acquired 19% of Dinghui Microelectronics's shares. Dinghui Microelectronics is a wholly-owned subsidiary invested and established by the company in 2015. It is mainly engaged in CMP polishing pad business. Before the acquisition, the company held 72.35% of Dinghui Microelectronics's shares, and the five employee-owned platforms held a total of 19% of the shares. After the acquisition was completed, the company increased its shareholding ratio to 91.35%, and the total transaction price was 475 million yuan. At the same time, five employee shareholding platforms promised that the cumulative net profit achieved by Dinghui Microelectronics in 2024, 2025, and 2026 will not be less than 710.3 million yuan.
It has advantages in various aspects such as technology and production capacity, and the company has broad room for future growth. The company is a leader in semiconductor materials in China. CMP polishing materials are released, YPI and PSPI industrialization breakthroughs, high-end photoresists are progressing steadily, and seven major technology platforms have built a grand blueprint. With the rapid development, certification, mass production and shipment of the company's optoelectronic semiconductor material products, it will maintain a high growth rate in the future. We expect the company to achieve net profit of 433 million yuan, 618 million yuan, and 851 million yuan respectively in 2024-2026, corresponding to the current price-earnings ratio levels of 45x, 31x, and 23x respectively, maintaining a “buy” rating.
Risk warning
1. Risk of exchange rate fluctuations;
2. R&D and product verification progress falls short of expectations.