2023 results slightly above our expectations
The company announced its 2023 results: revenue of 1,238 billion yuan, up 15% year on year, net profit of 403 million yuan, up 33.6% year on year, slightly higher than our expectations. The main reason is that the company's new polishing liquid and wet chemical products have entered the mass production stage, and the market share continues to increase.
Development trends
4Q23's revenue grew steadily, and gross margin continued to rise in 2023:4Q23 achieved operating income of 340 million yuan, up 5.2% month-on-month, and achieved steady growth. Net profit to mother was 87 million yuan, up 8.8% month-on-month, and net profit margin reached 25.6%, which was basically flat month-on-month. The gross margin was 55.1%, a slight decline from month to month. The company's gross margin for the full year of 2023 reached 55.7%, up 1.6 ppt year on year. The net profit margin was 32.5%, up 4.5 ppt year on year. The main reason for the increase in net profit margin was the increase in the company's other revenue from government subsidies. In terms of cost ratio, the company's sales expense rate/management expense rate/R&D expense ratio in 2023 were 3.9%/6.6%/19.1% respectively, an increase of 0.7/0.2/4.1ppt over the previous year. Among them, the R&D expense ratio increased significantly, mainly due to the company's emphasis on R&D innovation and continuous increase in investment.
The revenue and gross margin of polishing liquid increased steadily, and various products entered the mass production stage: the company's polishing liquid revenue in 2023 was 1,075 billion yuan, up 12.98% year on year, gross margin was 59.19%, up 0.6ppt year on year, and revenue and gross margin rose steadily. Among them, the company achieved mass production of copper and copper barrier layer polishing solutions in some leading technology products, the amount of silicon nitride polishing liquid was smooth, and various tungsten polishing liquids were verified in the advanced 3D NAND process. The polishing liquid used in the joint process entered the customer's production line as the preferred supplier. We believe that with the further expansion of the company's polishing liquid category, the market share is expected to increase further.
Continued expansion of wet chemicals and electroplating solutions is expected to open up the company's second growth curve. The company achieved revenue of 155 million yuan in 2023, an increase of 24.38% over the previous year, with a gross margin of 32.73%, and a year-on-year increase of 12.1ppt. Among them, the company's two water-based post-etching cleaning solutions entered mass production and applied to the advanced Damascus process. The post-etching cleaning liquid entered the customer testing and demonstration stage, and post-polishing liquid entered the mass production stage at the customer's advanced technology node. We believe that mass production of the company's wet chemicals and electroplating solutions is expected to open up the company's second growth curve.
Profit forecasting and valuation
We keep the company's profit forecast for 2024/2025 unchanged. We expect the company to achieve operating income of 16.29/2.011 billion yuan in 2024/2025 and net profit of 442/600 million yuan. The current stock price corresponds to the company's 2024/2025 30.3/22.4x P/E. We use the P/E valuation method to value the company and keep the company's target price of 190.8 yuan unchanged, corresponding to the company's 2024/2025 42.8/31.5x P/E, which is still 41% higher than the current stock price Space to maintain outperforming industry ratings.
risks
Downstream demand recovery falls short of expectations, raw material supply risks, and the risk of worsening competition.