Incidents:

On April 20, 2024, Debon Technology released its 2023 annual report: in 2023, the company achieved operating income of 932 million yuan, an increase of 0.37%; realized net profit attributable to shareholders of listed companies of 103 million yuan, a year-on-year decrease of 16.31%; and the weighted average return on net assets was 4.60%, down 7.37 percentage points from the previous year. The gross profit margin on sales was 29.19%, down 1.10 percentage points from the previous year; the net profit margin was 10.76%, down 2.30 percentage points from the previous year.

Among them, the company achieved revenue of 281 million yuan in 2023Q4, -4.87% year-on-year, +9.82% month-on-month; realized net profit of 0.19 million yuan, -52.66% year-on-year and -43.47% month-on-month; ROE was 0.84%, down 0.99 percentage points year-on-year and 0.66 percentage points month-on-month. The gross profit margin on sales was 28.64%, up 0.47 percentage points year on year and down 0.32 percentage points from month to month; net sales margin was 6.37%, down 6.86 percentage points year on year and 6.33 percentage points month on month.

Investment highlights:

Dragged down by price cuts for new energy sources and a weak recovery in consumer electronics demand, the company's performance declined slightly. In 2023, the company achieved operating income of 932 million yuan, an increase of 0.37% over the previous year; net profit attributable to shareholders of listed companies was 103 million yuan, a decrease of 16.31% year on year. In 2023, the company's profit declined slightly. On the one hand, in the field of new energy packaging materials, the growth rate of the NEV industry slowed in 2023, and the overall price reduction pressure in the industrial chain was high. The company achieved a slight decline in sales through volume compensation; on the other hand, in the smart terminal packaging materials sector, dragged down by a weak recovery in demand for consumer electronics terminals, the sector's revenue also declined.

In the field of integrated circuit packaging materials, against the backdrop of the semiconductor industry's inventory removal and slow recovery in downstream utilization rates, the company increased its development and guidance for new products and customers, and achieved a slight year-on-year increase of 2.11% in revenue in the integrated circuit packaging materials sector in 2023. The company achieved rapid revenue growth in the high-end equipment application materials sector, mainly benefiting from product introduction and launch at some application points in segments such as intelligent driving, smart cockpits, and automobile weight reduction.

The company increased R&D investment, with R&D expenses of 62 million yuan in 2023, +32.75% year-on-year. In terms of period expenses, the company's sales/management/ financial expenses ratio in 2023 was 5.66%/7.66%/-1.68%, respectively, +0.37/+1.38/ -1.77pct. Among them, the large increase in management expenses was mainly due to the increase in share payment fees and asset depreciation and amortization expenses in 2023.

Benefiting from domestic substitution, integrated circuit packaging materials are expected to be released

Under the dual considerations of supply chain security and cost control, domestic substitution of chip-level packaging materials is imminent. The company has completed verification tests with three leading domestic sealing and testing manufacturers, and will actively promote batch introduction of products. The company's four chip-level packaging materials DAF/CDAF, Underfill, AD glue, and TIM1 are also cooperating with many design companies and testing companies to advance verification. Among them, some models of DAF/CDAF, Underfill, and AD adhesives have been verified by customers, and DAF and AD adhesives have already been shipped in small batches, achieving a breakthrough of zero domestic materials. With breakthroughs and gradual release of various products, the company is expected to usher in high growth in the integrated circuit packaging materials sector

Stock repurchases continue, demonstrating confidence in the company's long-term development

On December 15, 2023, the company announced that it plans to use its own capital of not less than RMB 30 million and no more than RMB 60 million to repurchase RMB common shares already issued by the company for employee stock ownership plans or equity incentives. The implementation of the buyback plan shows confidence in the company's long-term development. At the same time, share buybacks for employee stock ownership plans or equity incentives will further establish and improve the company's long-term and effective incentive and restraint mechanism, fully mobilize employees' enthusiasm and creativity, attract and retain outstanding managers and business backbone, effectively integrate the interests of the company, shareholders and employees, and achieve the company's medium- to long-term development goals. As of March 31, 2024, the company had repurchased 881,100 shares, with a transaction amount of 41.6424 million yuan.

Profit forecasts and investment ratings

Based on the 2023 performance, we adjusted the company's profit forecast. We expect the company's revenue for 2024-2026 to be 11.88 billion yuan, 15.21 billion yuan, and 1,870 million yuan, respectively, and net profit to mother of 1.47, 1.93, and 255 million yuan, respectively. The corresponding PE is 29.70, 22.68, and 17.16 times, respectively. Considering that many of the company's IC packaging materials have achieved breakthroughs and are expected to be released, the company's “buy” rating was maintained.

Risk warning

The risk of falling product demand due to macroeconomic fluctuations; the risk of product iteration and technology development; the risk of slowing the integrated circuit localization process; the risk of cyclical fluctuations in the consumer electronics industry; the risk of increased industry competition.