Incident: The company released its annual report for '23 and its quarterly report for '24. In '23/24Q1, the company achieved revenue of 2,46.642 billion yuan, an increase of 7.22%/7.50% year on year; net profit to mother of 1.27/55 million yuan, an increase of 97.15%/a decrease of 30.87% year on year.
In '23, the energy saving and environmental protection and polymer composites business drove a steady increase in the company's revenue, and profitability improved markedly. In '23, the company achieved revenue of 2,467 billion yuan, of which revenue from energy-saving and environmental protection products and services/new electronic materials/polymer composites was 16.76/4.73/318 billion yuan, respectively, +8.94%/-0.38%/+10.52%; gross margin was 24%/19.37%/33.78%, respectively, +2.93pct/-2.21pct/-9.99pct. In '23, the company's gross margin was 24.37%, up 0.36pct year on year, mainly benefiting from the increase in gross margin of the energy saving and environmental protection business, which accounts for the largest share of revenue; the company's net sales margin was 5.77%, up 2.26pct year on year, and the sales/management/R&D/finance expenses ratio decreased by 0.19pct/1.38pct/0.57pct/0.50pct, respectively. In 24Q1, the company's revenue increased year on year, but net profit to mother declined. Mainly due to declining profitability, the company's gross sales margin/net margin was 22.19%/9.19%, respectively, down 3.4 pct/5.09 pct year on year.
The extraction and separation business was added in '23, which is expected to bring new growth. In '23, the company expanded its extraction and separation business around its subsidiary Sannuo New Materials. Relying on advanced extraction and separation technology, Sannuo New Materials is widely used in fields such as hydrometallurgy, rare earth separation, salt lake lithium extraction, urban mine resource disposal, battery metal recycling and recycling. With the transformation and upgrading of traditional manufacturing industries and the development of emerging industries such as new energy vehicles, demand for copper extractants and metal extractants for new energy batteries continues to expand, and the extraction and separation business is expected to bring new growth points to the company.
PMI foam products can be widely used in various types of aircraft and are expected to benefit from increased demand in aerospace and other fields. Zhaoheng Technology was founded by the Hunan Plastics Research Institute. Its PMI products are essential supporting materials for various types of civil aircraft, military aircraft, drones, etc. made of carbon fiber composites. In the military goods market, Zhaoheng Technology is at the forefront of the industry in terms of product technology level, market share, and degree of professional focus.
In '23, the company focused its efforts in the fields of aerospace, weapons, drones, etc., and its market share increased steadily, and its product performance in the aviation market grew; in terms of civilian products, the market share of key customers in floats, medical equipment, and sports equipment increased markedly. At the same time, the company has made scientific breakthroughs in wave-absorbing stealth materials, carbon fiber composites, and electromagnetic shielding materials. Zhaoheng Technology's net profit in '23 was 46 million yuan, up 26.6% year on year, and the net profit margin reached 48.3%.
Profit forecast, valuation and rating: Considering the impact that increased competition in downstream photovoltaics, lithium battery recycling and other fields may have on the company's performance, the net profit forecast for 24-25 was lowered to 275 million yuan and 343 million yuan (previous values were 428 million yuan and 557 million yuan, respectively), and an additional 416 million yuan was added to the 26-year net profit forecast. The EPS of the corresponding company in 24-26 was 0.30, 0.38, and 0.46 yuan respectively, and the current stock price corresponding PE was 19x, 16x, and 13x, respectively. Longhua Technology is a new material platform company. It has broad application prospects for products such as extractants and PMI foam, which is expected to drive the company's performance growth. Maintain a “buy” rating.
Risk warning: Risk of industrial policy fluctuations, increased risk of industry competition, and risk of new business development falling short of expectations.