The bottom of the industry has passed. I am optimistic about improving the company's product structure under Fenghua Hi-Tech's annual report. In 2023, it achieved revenue of 4.22 billion yuan (YoY: 8.97%), net profit to mother of 173 million yuan (YoY: -46.99%, adjusted), and deducted 150 million yuan in non-net profit (YoY:
149.95%) We have seen that the supply-side inflection point of the industry has passed, and the company's inventory turnover days peaked in 2Q22. Looking ahead to 2024, IDC expects China's smart phone shipments to reach 287 million units, an increase of 3.6%. It is optimistic that terminal recovery will drive the company's profitability to improve. However, considering that downstream demand is not enough to support MLCC price increases, we forecast net profit to mother for 24-26 of 40/5.6/690 million yuan (previous value:
(RMB 64/860 million yuan in 24/25). At the same time, it is optimistic about Fenghua's high-end production capacity expansion and the introduction of strategic shareholders to optimize corporate governance. Considering that the company is the MLCC domestic leader and has a leading edge in high-end transformation, the company was given 37x expected PE (Wind's consistent expected comparable average of 22.4x) for 24 years, and a target price of 12.95 yuan to maintain the purchase rating.
2023: Industry sentiment gradually recovered, capacity utilization gradually rebounded in 4Q23, and the company's net profit to mother was +336.1% YoY to 62 million yuan (QoQ: +134.8%). In 2023, the industry continued to remove inventory since the beginning of the year. After entering Q2, passive component orders improved marginally, driven by downstream inventory replenishment demand, the overall operating rate increased, and industry prosperity rebounded. Looking back at 2023, we see that: 1) with the gradual improvement of downstream demand, the company's capacity utilization rate gradually rebounded, driving profitability recovery; 2) the Xianghe project was officially put into trial production, and the company's “technical improvement and production expansion project with a monthly output of 100 million new integrated inductors” and the “technical improvement and production expansion project with a monthly output of 4 billion multilayer inductors” are progressing in an orderly manner. Currently, part of the production capacity of integrated inductors has been released; 3) The company is promoting cost reduction and fee reduction through fine management, process technology improvement, and equipment automation.
2024: Optimistic about the company's high-end layout, market expansion to help new energy/communication/industrial control customers enter the outlook for 2024. 1) In terms of production capacity, the Xianghe Project will continue to release production capacity in the second half of 2023, and gross margin is expected to increase further in 2024 as capacity utilization increases; 2) In terms of high-end products, the technical level and production capacity scale of the company's high-end products such as high capacity, vehicle specifications, medium and high pressure, high temperature coefficient, flexible terminals, and high precision will continue to improve. We are optimistic that the proportion of high-end products will drive the company's product structure to be further optimized. Looking forward to the future, we are optimistic about the company's high-end strategy to build competitive barriers and drive share growth and profit margin improvement. 3) On the customer side, the company continues to improve the technical level and delivery capacity of automotive and industrial control application products, and is increasing market development in emerging fields such as AR, VR, photovoltaics, wind power, etc., to help introduce new energy/communication/industrial control customers.
A target price of $12.95 was given, and the buy rating was maintained
We are optimistic that the company, as a domestic MLCC leader, will continue to increase its global share through high-end strategies and the introduction of customers in diverse industries. EPS is forecast to be 0.35/0.48/0.59 yuan for 24/25/26. Based on the long-term potential brought about by the company's high-end market development and the operating vitality brought about by management changes, 37x PE was given for 24 years, and a target price of 12.95 yuan (previous value 16.8 yuan) was given, and the purchase rating was maintained.
Risk warning: The risk that the macroeconomy drags down demand; the risk of progress in expanding production.