Performance summary: In 2023, the company achieved operating income of 1.77 billion yuan (+22.4%), net profit to mother of 330 million yuan (+46.6%), corresponding basic EPS of 2.77 yuan, net profit of 305 million yuan (+53.6%), dividend per share of 0.85 yuan, corresponding dividend rate of 1.0%; of these, 2023Q4 achieved operating income of 470 million yuan (+12.4% YoY, +3.1% month-on-month), and realized net profit of 94 million yuan (YoY +24.3%, month-on-month profit). 0.89 million yuan (YoY +28.1%, month-on-month +30.0%);
Supply and demand are strong in the amorphous industry: in terms of output, by the end of November 2023, the country's iron-based amorphous production reached 104,000 tons, surpassing the annual output of 92,000 tons in 2022, an increase of 27% over the previous year, a five-year high. The annual output is expected to be 120,000 tons.
In terms of demand, amorphous alloys have been used in many fields. GAC Aian released Quark electric drives. The core technology is “nanocrystalline - amorphous ultra-efficiency motors,” marking the entry of amorphous alloy drive motors into the field of new energy vehicles. The company's products have been widely used by high-quality customers such as Tesla, Gree, and TDK; revenue has maintained steady growth, and the company has accelerated overseas: by product, the amorphous business revenue is 1.37 billion yuan (+24.3%), and while the price remains stable at 15,700 yuan/ton (+1.5%), the main reason is the increase in sales volume of 87,000 tons (+22.4%) due to rising production capacity; the main reason is the sales volume of nanocrystalline business products is 50,000 tons (+10.6%), the price is 45,000 yuan/ton (-4.6%), and the inventory volume increased sharply by 427 tons (+100%). Demand in downstream sectors such as household appliances is weak; the magnetic powder business continues to grow steadily (+11.6%). By region, the company actively lays out overseas business. Overseas business revenue is 650 million yuan, and the growth rate (+38.5%) is significantly higher than domestic. Mainly, the company is focusing on markets such as India, Vietnam, South Korea, etc., and actively exploring markets such as Europe, Latin America and Africa;
Profitability continues to increase, with significant cost reduction and efficiency: annual gross profit margin of 30.5% (+3.7 pcts month-on-month). By product, the gross margin of amorphous alloys, nanocrystals, and magnetic powders was 34.2%/19.4%/11.2%. Among them, the amorphous alloy and magnetic powder business increased 3.7 pcts/9.4 pcts respectively compared to 2022. Observation costs can be found mainly due to the decline in the cost of raw materials such as industrial ferrosilicon, etc., while the sales price of the product remained stable. The cost rate remained flat month-on-month (+0.2pcts) during the period. Among them, the management cost ratio decreased a lot (-0.6pcts), which hedged the increase in R&D expenses and sales expenses. The gross profit margin in 2023Q4 was 32.0% (+2.1pcts month-on-month), mainly due to the further decline in the prices of raw materials such as ferrosilicon in the fourth quarter;
Financial data: The company's intangible assets increased by 72.7% during the reporting period, mainly due to the purchase of new land in the current period; contract liabilities decreased by 51.1%, mainly due to the company's gradual completion of orders and a decrease in advance payment; significant changes in cash flow from investment activities, mainly due to capital raised in 2022, with a high base;
New quality productivity is driving high demand in the industry: with the transformation of old and new domestic kinetic energy, the rapid development of new quality productivity, the rapid development of AI has driven fixed asset investment in computing power centers. After using amorphous alloy transformers, each 10,000 square data center saves 80,000 degrees of energy, making it the best choice for data centers; in the field of new energy, according to WoodMachEnzie's forecast, the inverter replacement cost is close to 1.2 billion US dollars by 2024, driving the continuous expansion of demand for nanocrystals and magnetic powders; in the electricity distribution sector, along with global electricity The trend of electrification and electrification is deepening, and demand for high frequency and low load connections to the grid continues to increase. European and American countries have issued power grid transformation plans one after another, driving a high increase in demand for energy-saving amorphous transformers;
Raw material prices have declined further, and the company's performance can be expected: since 2024, the price of ferrosilicon will drop from 6,654 yuan/ton at the beginning of the year to 6,233 yuan/ton (a decrease of about 6.3%), and the price of pig iron will drop from 3,530 yuan/ton at the beginning of the year to 3,380 yuan/ton (a decrease of about 7.1%). In 2024, the magnetic materials industry will account for 72.4% of the cost of direct materials. According to the prospectus, scrap steel, industrial pure iron, and ferrosilicon together account for more than 35% of raw materials, so the decline in raw material prices is expected to increase product profitability;
Investment advice: As a leading amorphous alloy strip enterprise, the company fully benefits from amorphous alloy-related materials in the context of rapid growth in new quality productivity. As the company expands in different downstream fields and overseas business, its performance will maintain steady and rapid growth. We expect the company to achieve operating income of 1.82 billion yuan, 1.99 billion yuan, and 2.33 billion yuan in 2024-2026, up 2.9%, 9.3%, and 16.8% year-on-year net profit of 370 million yuan, 450 million yuan, and 550 million yuan, up 11.1%, 21.6%, and 22.2% year-on-year, corresponding to PE26X, 21X, and 17X, maintaining a “buy” rating.
Risk warning: downstream penetration rate falls short of expectations, raw material prices rise, production capacity investment falls short of expectations, industry competition intensifies