Matters:
On April 15, 2024, the company released its 2023 annual report:
1) 2023: Operating income of 1,238 billion yuan, +14.96% year on year; gross profit margin of 55.81%, +1.60pct year on year; net profit attributable to mother/after deduction of 4.03/322 billion yuan, +33.60%/+7.17% year over year;
2) 2023Q4: Operating income of 340 million yuan, +20.02% year over month, +5.07% month on month; gross profit margin of 55.21%, -3.45 pct year on month, -2.53 pct month on month; net profit to mother of 87 million yuan, -7.98% year on month, +8.58% month on month; net profit without deduction of 80 million yuan, +7.61% year on month, -0.87% month on month.
Commentary:
Performance has maintained steady growth, and the company's performance and profitability are expected to continue to improve under the platform-based layout. The company continues to iterate on the performance and stability of CMP polishing liquid products, and its market share continues to increase. In 2023, the CMP polishing liquid business achieved operating revenue of 1,075 billion yuan, +12.98% year over year; gross profit margin was 59.19%, +0.60 pct year on year. In terms of wet electronic chemicals, the company's continuous enrichment of product lines led to a significant increase in performance. In 2023, the wet electronic chemicals business achieved operating income of 155 million yuan, +24.38% year over year; gross profit margin of 32.73%, +12.10 pct year on year. In addition, the company is also actively promoting the platform-based layout of electroplating solutions, additives, and key raw materials. As new products are released one after another, the company's performance and profitability are expected to continue to improve.
The recovery in the operating rate of wafer factories combined with continuous expansion of production has led to a continuous increase in demand for CMP polishing liquid. The semiconductor industry cycle is picking up, and the operating rate of downstream fabs is expected to continue to recover, driving the demand for CMP polishing liquid to increase. In the medium to long term, domestic fabs continue to expand production. As a key material for flattening the wafer manufacturing process, local demand for CMP polishing liquid has increased dramatically; at the same time, the variety and consumption of CMP polishing liquid required for wafer manufacturing has increased dramatically, and demand for CMP polishing liquid will increase significantly as technology advances. In addition, changes in the trade situation have accelerated the localization process of semiconductor materials. As a leading domestic CMP polishing solution manufacturer, the company is expected to continue to benefit from the development of the industry.
The company insists on independent research and development to build core barriers and broaden the product line to build a semiconductor material platform. The semiconductor materials industry has high technical barriers, and since its establishment, the company has maintained a high level of R&D investment to form its core competitiveness.
In terms of CMP polishing liquid, the company lays out all types of products and cooperates with downstream to develop the most advanced products; in terms of wet electronic chemicals, the company's etching liquid products have successfully entered the testing and demonstration stage in 2023; in terms of electroplating solutions and additives, the development of the advanced packaging product market in 2023 is progressing smoothly, and the copper Damascus process and silicon through hole (TSV) electroplating solutions and additives for IC manufacturing have entered the testing and demonstration stage; in terms of key raw materials, various types of cerium oxide abrasives produced by the company have passed client verification and mass production and supply has begun.
In the future, as the company's product categories continue to be enriched, the results of the semiconductor material platform-based layout will continue to show results.
Investment suggestions: Fab production expansion continues to advance, domestic substitution accelerates, and the company actively broadens the product matrix to build a semiconductor material supply platform. We maintained the company's 2024-2025 net profit forecast of 488/612 million yuan, and added the 2026 net profit forecast of 759 million yuan, corresponding EPS of 4.85/6.18/7.67 yuan. Referring to the industry's valuation, the company was given 37 times PE in 2024, corresponding to a target price of 179.4 yuan, maintaining a “strong” rating.
Risk warning: Changes in the external trade environment; industry competition intensifies; product development progress falls short of expectations; industry sentiment recovery falls short of expectations.