Tongcheng New Materials released its 2023 annual report. In 2023, the company achieved revenue of 2.94 billion yuan, yoy +17.7%, net profit of 407 million yuan, yoy +36.4%, a record high. Among them, the electronic materials business achieved revenue of 550 million yuan and yoy +46.05%, while the traditional rubber additives business achieved revenue of 2.28 billion yuan and yoy +8.7%.

Net profit without return to mother for the year was 386 million yuan, yoy +82.3%, comprehensive gross profit margin for the year was 23.7%, -0.3% year over year, and net profit margin was 13.8%, +1.9% year over year. The company achieved revenue of 750 million yuan in a single quarter of 2023Q4, yoy +14.5%, net profit to mother of 57 million yuan, yoy -1.9%, net profit of 60 million yuan after deducting non-attributable net profit of 60 million yuan, yoy +196.3%. The consolidated gross profit margin for the single quarter was 22.9%, and the net profit margin to mother was 7.6%. The company continues to expand its electronic materials business on the basis of steady growth in the main business of specialty materials for automobiles and tires. The share of revenue of high-end photoresist products continues to increase, the product categories are richer, and revenue performance has both increased.

The volume of semiconductor photoresists bucked the trend, and the introduction of new products accelerated. The company's semiconductor photoresist business achieved revenue of 200 million yuan in 2023 (company-wide caliber), with a year-on-year increase of 14.1%. Among them, KrF photoresist products achieved rapid year-on-year growth. The company's KrF photoresist product series continued to improve, market share continued to rise, and some products have obtained the status of leading domestic fabrics' production lines. The company's chemically amplified I-line (ICA) photoresists increased 335% year-on-year. Currently, the company's I-line photoresists are close to the international advanced level, and the categories cover most of the process requirements of domestic logic and memory production lines. By the end of 2023, the company had 27 12-inch customers and 23 8-inch customers. 8/12-inch customers accounted for more than 50% of revenue, an increase of 9 pcts over the previous year. Despite low demand in the semiconductor industry in 2023, the company's semiconductor photoresist business achieved contrarian growth, mainly due to the company's strong trend of replacing and introducing new products, as well as the continued release of mature products. In 2023, Tongcheng New Materials's new product revenue accounted for 44.12% of total semiconductor photoresist sales, an increase of 5 pct over the previous year, and the revenue structure continued to be optimized. In addition, the company's various shipping indicators for ArF photoresist can match the products of major international photoresist manufacturers, and it already has mass production capacity. As a leading supplier of domestic ArF mass production, Tongcheng New Materials is expected to take the lead in benefiting from the expansion of domestic fab production, the increase in the share of domestic materials, and the upgrading of domestic wafer manufacturing process nodes.

Electronic materials platforms are on the rise. Panel photoresist: The company's Beixu electronic display panel photoresist business achieved revenue of 261 million yuan in 2023, yoy +22.8%. The sales volume of panel photoresist products increased 29.8% year-on-year, and the domestic market share was about 22.1%. The company has always attached importance to research and development. As the first supplier of OLED photoresist to achieve localized production in China, the company's products can be widely used in the G4.5 to G6 generation line and are compatible with rigid and flexible OLED panel processes. In 2023, Beixu Electronics made significant progress in the AMOLED application market, and its high-resolution photoresists and low-temperature photoresists were mass-produced and sold to major domestic customers respectively. In addition, on the basis of a further increase in BOE's share, the company is actively promoting the development of new customers for domestic panel manufacturers, with 6 new mass production and sales customers in 2023. Photoresist resin: KrF photoresist PHS resin is one of the company's key research and development directions. In 2023, the company's laboratory developed and expanded various PHS resins such as TBocPHS, EVE-PHS, ESCAP, and Terpolymer. The equipment for the new PHS resin production plant has been installed and commissioned in 23 years, and pilot tests have been carried out on amplified high-resolution KrF photoresist resins and general-purpose KrF photoresist resins. Some PHS resin mass-produced products have already been used in the company's photoresist products, achieving a key breakthrough in KrF film-forming resin. In addition, some of the company's panel photoresist phenolic resin products and high-resolution photoresist phenolic resin products have already been mass-produced. Several G/I line phenolic resins are in the pilot/major testing stage, and some have successfully passed formulation tests and have entered the customer promotion stage.

As the core leader of domestic photoresists, Tongcheng New Materials continues to break through in new products such as A glue, K glue, and high-end I-line. At the same time, it is actively laying out the upstream photoresist (IC+ panel) (resin) and integrating the industrial chain from the bottom up, greatly improving the company's photoresist research and development capabilities and increasing profit levels. We expect the company to achieve revenue of 36.2/42.8/4.93 billion yuan and net profit to mother of 48/5.8/690 million yuan in 2024-2026, respectively, and raised to the “Highly Recommended” rating.

Risk warning: Downstream production expansion falls short of expectations, risk of international trade disputes, and increased market competition.