Matters:
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 202 million yuan, yoy +39.46%; realized net profit to mother of 52 million yuan, yoy +79.94%; deducted non-net profit of 46 million yuan, yoy +99.97%; gross sales margin was 40.71%, an increase of 4.13 percentage points over the previous year.
Ping An's point of view:
Downstream demand picked up, and the company's orders increased in the first quarter. According to data from the China Bureau of Statistics, in the first quarter of 2024, China's chip production increased by about 40%, reaching 98.1 billion units. In February 2024, global and Chinese semiconductor sales increased by 14.3% and 28.8%, respectively. The company's silicon powder products are mainly filled with epoxy encapsulants and copper-clad plates and adhesives for semiconductor packaging. The recovery in downstream demand led to an increase in orders in the first quarter of 2024, thus achieving a year-on-year increase of 39.5% to 202 million yuan in revenue, and a year-on-year increase of nearly 80% to 51.675 million yuan in net profit.
The product sales structure is gradually being upgraded, and efforts continue to be made for high-performance spherical powders. The company made efforts to lay out high-frequency high-speed copper-clad plates of M7 and above, high-performance spherical powders with epoxy encapsulation for HBM, and continued to launch various specifications of micron/sub-micron ultrafine spherical silicon powder, low-α, low-DK spherical silicone/spherical aluminum, and high thermal conductivity micron/submicron spherical alumina for new energy batteries. The high-end product structure led the company's gross sales margin to increase 4.13 percentage points to 40.7% year-on-year. The company's new layout projects are also mainly aimed at high-performance electronic grade powder materials: the 252,000 ton electronic grade functional powder project for integrated circuits announced on October 25, 2023 is under construction and is expected to be completed and put into operation in the third quarter of this year; the planned investment announced on March 25, 2024 is to invest 129 million yuan to build an ultra-fine spherical powder production line for advanced integrated circuits, which will increase the production capacity of ultra-fine spherical powder by 3,000 tons, and is expected to be put into operation in 2025.
Investment in R&D continued to increase, and the cost rate declined during other periods. 2024Q1 invested 12.977 million yuan in R&D expenses, an increase of 34.62% over the previous year, accounting for 6.42% of revenue. It is mainly used to develop high-performance products such as ultra-fine spherical powders for integrated circuits. In terms of expenses for other periods, 24Q1's sales, management, and finance expenses rates were 1.18%, 6.82%, and 0.18%, respectively, down from 1.79%, 8.09%, and 0.36% in the same period in 2023.
Investment suggestion: The company is a leading domestic producer of electronic grade silicon powder, leading domestic production capacity. At the same time, it already supplies low-α spherical silicon powder and spherical alumina powder with high barriers for HBM memory chip packaging in small quantities. In the future, a new 252,000 ton large-scale electronic grade functional powder project for integrated circuits will be completed and production capacity released, and the company's leading position in this field will be further consolidated. Due to beta repair in the semiconductor industry and alpha resonance on the silicon powder circuit, the company's performance is expected to return to positive double-digit growth. It is expected to achieve net profit of 2.34, 3.03, and 400 million yuan (unchanged from the original value) in 2024-2026. PE corresponding to the closing price on April 25, 2024 is 35.8, 27.7, and 20.9 times, respectively. I am optimistic about the gradual release of the company's production capacity and product upgrades and iterations. It is expected that it will continue to penetrate high-end application fields over the next 3 years and maintain a “recommended” rating.
Risk warning: 1. Downstream demand falls short of expectations. If demand growth in terminal industries such as 5G, AI, cloud computing, and consumer electronics slows down, semiconductor fundamentals are difficult to repair or the inflection point is delayed, the growth rate of demand for integrated circuit packaging materials, copper-clad plates, etc. falls short of expectations, and the company's silicon powder sales and sales prices may not return to growth. 2. The risk of slowing down the project process. If the company's products being developed and projects under construction are delayed due to factors such as technical bottlenecks or a slowdown in facility construction, it will have a negative impact on the company's performance growth, and the competitiveness of related products may also decline. 3. Risk of fluctuations in raw material prices. 4. Accelerate the release of risks in the industry's production capacity. 5. Measure the risk of subjective bias.