Results for 2023 and 1Q24 fell far short of our expectations
The company announced its 2023 and 1Q24 results: In 2023, it achieved revenue of 3.01 billion yuan, a year-on-year increase of 4.6%, and a year-on-year decrease of 19.87%; of these, 4Q23 achieved revenue of 803 million yuan, an increase of 1.9%, and net profit of -91 million yuan; 1Q24 achieved revenue of 715 million yuan, an increase of 7.5% over the previous year, and net profit of 107 million yuan, a year-on-year decrease of 41.45%. Due to falling product prices, the company's performance fell short of our expectations.
Development trends
4Q23-1Q24 shipments continued to decline month-on-month. At the same time, the price of diaphragm products fell, and the company's unit profits were seriously damaged.
Production and sales volume: Production and sales are expected to continue to increase. The 4Q23 company shipped 730 million square meters, a decrease of 6.4% over the previous year. In 2023, it shipped a total of 2.53 billion square meters, an increase of 48% over the previous year, of which the wet and dry method each accounted for about 50%. 1Q24 was affected by weak demand in the terminal industry, and the company shipped 63-64 million square meters, a decrease of 13% over the previous month. Looking backwards, we expect the company's shipments to major domestic customers and overseas customers such as LG and Samsung to grow rapidly after Q2. Shipments are expected to reach 1 billion square meters, and annual shipments are expected to exceed 4 billion square meters, an increase of more than 58% over the previous year.
Average price and profit per unit: Single flat profit declined due to product price cuts, and is expected to pick up in Q2. We estimate that the average price of the company's 4Q23 and 1Q24 is about 1.08 and 1.12 yuan/square meter, respectively. Price stability is mainly due to an increase in the share of wet diaphragms and coating films in the company's shipments. We expect there is still room for further improvement in 2024. The 4Q23 company had more than 100 million yuan in litigation and settlement fees, as well as bonuses and litigation consulting fees. We estimate that if these costs were restored, 4Q23 deducted non-net profit of about 0.22 yuan, a decrease of 0.12 yuan over the previous month. At the same time, it is estimated that the non-net profit for 1Q24 was 0.15 yuan, a further decrease of 0.07 yuan over the previous month. The continued decline in single flat profit was mainly due to the continued sharp drop in product prices. Currently, diaphragm prices have stabilized in the second quarter, and increased capacity utilization has led to lower costs. We expect the company's Q2 net profit to increase sequentially.
Profit forecasting and valuation
Due to the price reduction of diaphragm products, we reduced 2024 net profit by 54% to 620 million yuan, and introduced net profit of 764 million yuan in 2025. The current stock price corresponds to 22.5 times the 2024 price-earnings ratio and 18.3 times the 2025 price-earnings ratio. However, considering the company's increased competitiveness and increased market share, we maintained our industry performance rating and lowered our target price by 35% to 11.0 yuan, which corresponds to 23.9 times the 2024 price-earnings ratio and 19.5 times the 2025 price-earnings ratio. There is 5.9% upside compared to the current stock price.
risks
The price of diaphragms continues to drop, the company's cost reduction falls short of expectations, and the company's overseas shipments fall short of expectations.