2023 results fall short of our expectations
The company announced 2023 results: revenue of 5.01 billion yuan, up 8.37% year on year; net profit due to mother was 107 million yuan, down 23.61% year on year; net profit loss after deducting non-return to mother was 52.44 million yuan (net profit after deducting non-return to mother was 2.25 million yuan in 2022), of which non-recurring profit and loss were mainly 170 million yuan in government subsidies. Results fell short of our expectations, mainly due to increased asset impairment and credit impairment losses. Corresponding to 4Q23 revenue of 660 million yuan, a year-on-year decrease of 29.79%; net profit to mother was 11.12 million yuan, a year-on-year decrease of 69.16%.
The company will pay a cash dividend of 0.05 yuan/share (tax included) in 2023.
Development trends
The display materials business is developing steadily, and attention is being paid to the progress of UTG and display module projects. The company's display modules successfully entered the supply chain of major international customers such as LGD and Samsung, and the display materials business revenue increased 5.04% year-on-year to 3.396 billion yuan in 2023. The gross profit margin of the display materials business in 2023 was 11.21%, down 2.38ppt from the previous year, mainly due to weak demand for downstream terminals, which dragged down the profitability of the display materials business. The company announced that UTG Phase II has completed the construction of four production lines and introduced customer resource pools such as well-known downstream panel companies and terminal manufacturers; 2 vehicle and 4 laptop cable production lines in the production line with an annual output of 13.5 million tablets have been installed. We are optimistic that the project's production capacity release will contribute to the increase in performance.
The profitability of the applied materials business was under pressure, and the high-purity quartz sand business began to contribute to profits. In 2023, the revenue of the applied materials business increased 19.47% year on year to 1,614 million yuan, and total profit decreased 22.72% year on year to 239 million yuan. The main reason was the rise in raw material prices, and the gross margin of the business fell 9.5ppt to 18.74% year on year. In 2023, Kaisheng Quartz Materials (Taihu), a wholly-owned subsidiary, achieved revenue of 136 million yuan and net profit of 13.96 million yuan. The company's high-purity quartz sand business began to contribute to profit growth.
I am optimistic about the future growth of UTG+ high-purity synthetic silicon dioxide dual-wheel drive performance. Looking forward to the future: 1) In the display materials sector, IDC expects China's folding screen phone shipments to increase by 53.2% year on year in 2024. We are optimistic about the company's domestic replacement advantages in UTG original films and post-processing technology; 2) In the applied materials sector, the company announced the launch of a high-purity quartz material production line for photovoltaics with an annual output of 5,000 tons, which has been recognized by leading companies in the industry. We are optimistic about the release of high-end silicon-based materials, which is expected to become the company's second growth curve.
Profit forecasting and valuation
Taking into account the slow recovery in terminal demand and falling prices for some products, the 2024 net profit forecast was lowered by 12.5% to 203 million yuan, and a new 2025 net profit forecast of 324 million yuan was introduced. The current stock price corresponds to 2024/2025 50.5x/31.6 times P/E. Maintaining an outperforming industry rating, considering new projects or expansion in 2025, switching to the 2025 SOTP valuation, and lowering the target price by 7.4% to 13.61 yuan (40.5 times P/E in 2025), there is 25.4% upside compared to the current stock price.
risks
The production progress of high-purity synthetic silica fell short of expectations, and the introduction of UTG customers fell short of expectations.