The company released its 2023 annual report. In 2023, the company achieved operating income of 1,320 million yuan, a year-on-year increase of 8.34%, achieved net profit of 219 million yuan, a year-on-year decrease of 1.59%, and realized net profit of 176 million yuan after deduction, a year-on-year decrease of 15.31%. As a leading global PCB drill company, the company is expected to benefit from the increased penetration rate of high-end products such as micro drills and coated drills in the future. On the other hand, the company's strategic layout of new businesses such as CNC tools, smart devices, and functional film products is expected to continue to contribute new growth momentum and maintain the company's increased holdings rating.

Key points to support ratings

Tool products continued to perform steadily during the downturn in the industry, and new businesses achieved significant growth. In 2023, the company achieved revenue of 1.32 billion yuan, an increase of 8.34% over the previous year. By business, tool products achieved revenue of 1,042 billion yuan, a year-on-year increase of 0.56%. Even in the context of the continued downturn in demand in the global consumer electronics industry and inventory removal, the company eliminated external adverse factors through measures such as optimizing product costs, product structure upgrades, and expanding usage scenarios to achieve a slight year-on-year increase in tool product revenue; functional film products/intelligent CNC equipment in the new business continued to break through, and achieved revenue of 0.90/0.48 million yuan in 2023/ 278.55%, a significant increase.

Competition in the industry has intensified, putting pressure on profitability. Due to insufficient market prosperity in the PCB industry, competition in the PCB tool market intensified and prices declined, leading to pressure on the company's overall profitability. In 2023, the company's overall gross margin was 36.42%, down 2.30pct year on year, and the net margin was 16.62%, down 1.64pct year on year. In terms of cost rates, the annual sales/management/R&D/finance cost rates were 5.03%/6.63%/7.40%/-0.14%, respectively, and +1.97pct/-0.70pct/+0.85pct/-1.22pct. The total cost rate for the period was 18.92%, up 0.90 pct year on year, and the cost rate was properly controlled.

PCB drills are becoming high-end, and new products such as functional film products have created a second growth curve. In terms of the PCB drill business, the company continuously optimizes the product structure, expands the production capacity of micro drills with a diameter of 0.2 mm and below, increases the share of coated drills, and strengthens research and development of high-length-to-diameter drills. In 2023, the company's sales of 0.2 mm and less micro drills accounted for about 16.24%, and coated drills accounted for about 24.01% of sales, and competitiveness continued to improve. In addition, the company has achieved breakthroughs in its active layout of functional film products. Among them, mobile phone security films have been mass-produced and sold, and automotive photocontrol films and explosion-proof film products have gradually entered the certification system of downstream manufacturers, which is expected to contribute new growth momentum to the company in the future.

valuations

According to the revenue and profitability of the company's various businesses, we have slightly adjusted the company's profit forecast. We expect to achieve operating income of 16.94/20.87/2.01 billion yuan in 2024-2026, net profit of 2.89/3.56/404 billion yuan, EPS of 0.71/0.87/1.07 yuan, and current stock price corresponding to PE is 25.5/20.8/16.8 times. Considering the company's position as the leading global PCB drill needle, it is expected to benefit from an increase in the penetration rate of high-end products such as micro drills and coated drills. On the other hand, the company's strategic layout of new businesses such as CNC tools, intelligent equipment, and functional film products is expected to continue to contribute to new growth momentum and continue to maintain an increase in holdings rating.

The main risks faced by ratings

Risk of downstream demand falling short of expectations; risk of fluctuating raw material prices; risk of new business expansion falling short of expectations; risk of increased market competition.