Event: The company publishes its report for the first quarter of 2024. In 2024Q1, the company achieved operating income of 335 million yuan, a year-on-year increase of 15.28%; realized net profit deducted from mother 68 million yuan, an increase of 5.09% over the previous year; and basic earnings per share +8.64% to 0.3597 yuan. The rapid development of artificial intelligence and the continuous promotion of new infrastructure have led to rapid growth in the company's business scale.

The steady growth trend of the alloy soft magnetic powder core business continues. The alloy soft magnetic powder core business is the company's core pillar business, accounting for 88.59% of the company's total revenue in 23 years, and the gross margin increased by 1.24 pct to a new high of 38.96% in the past four years. The company launched the new iron-silicon series magnetic powder core (NPV, NPC series) and iron-nickel series magnetic powder core (NPN-LH) in 2023. In 2024, the company will promote the market launch of GPV and GPC series (based on NPV and NPC optimization and upgrade). Furthermore, given that the company's iron-silicon 5th generation magnetic powder cores have made breakthrough progress in the laboratory and their loss characteristics have been further reduced by about 50% compared to the 4th generation, which will help the company to increase the absolute competitiveness of its products and continue to increase its market share. Looking at the revenue scale and gross profit scale status of the metal soft magnetic powder core business, its CAGR reached 28.7% and 29.7% respectively in the past four years from 2020 to 2023. Considering that the gross margin of this business has continued to rise in recent years and has reached 38.96%, it shows that the company's metal soft magnetic powder core business has stable and high growth while substantially improving product competitive advantage and profitability. Furthermore, from a growth perspective, the company's current total production capacity is about 33,000 tons. The technical reforms at the Huizhou base combined with the Heyuan base's production capacity will release or drive the company's total production capacity to increase 112% to about 70,000 tons by 2025. Strong growth in the metal soft magnetic powder core business will optimize the company's profitability.

The chip inductor business has become the company's second growth curve. The company's chip inductor business has reached a CAGR of 280.2% since 2020, accounting for a share of total revenue of 0.38% to 8.87% in 2008 (business revenue increased from 1.87 million yuan to 103 million yuan, of which revenue scale +407% in 23). The data shows that the magnetic inductor business has become the company's second growth pole. Chip inductors mainly supply power to chip front-ends such as GPU/CPU/ASIC. Demand for large computing power under the trend of high computing power is sinking, and there is a huge demand for miniaturization of chip processes, miniaturization of power modules, and resistance to high voltage and high current. The company has successfully developed AI chip serialized and customized chip inductors. Among them, inductor parts compatible with 700W GPUs have received batch orders, achieved large-scale mass production, and have been used by many of the world's leading GPU chip manufacturers. Considering that the company has introduced VPD integrated inductors (vertical power supply modules) and TLVR inductors (high transient response performance and low power loss) for AI server power circuits, it is expected that the company's continued leadership in the inductor component business will drive the company's growth to resonate with the digital economy. From a production capacity perspective, the company has now achieved a fully automated production capacity of 5 million tablets/month, and the production capacity will expand to 10 million tablets/month in 24 years according to market demand. Since the company has set up a holding subsidiary, Huizhou Platinum New Sense, to promote large-scale and specialized operation of the chip business, it is expected that the inductor business will account for about 50% of the company's total business during the fourth and fifth planning phase, which means that the chip inductor business will drive the company's second largest growth rate.

Metal soft magnetic powder has entered the phase of accelerated mass production. Metal soft magnetic powder is the core raw material for manufacturing metal soft magnetic powder cores. Among them, the composition, morphology and purity of the soft magnetic powder determine the physical properties of the soft magnetic powder core and have a substantial impact on the operating efficiency of the inductive element. The iron silicon powder and iron silicon aluminum powder produced by the company are mainly used to produce the company's metal soft magnetic powder core products, and iron silicon chromium powder is mainly supplied to downstream customers to produce integrated inductors. The sales scale of the company's soft metal magnetic powder increased from 10.48 million yuan in 2020 to 27.11 million yuan in 23 (gross profit margin of 53.78%), accounting for the highest share of total revenue of 2.34% in the past five years, accounting for a sharp rise to 3.2% of the company's gross margin.

The company began preparing to build a powder plant with an annual production capacity of 6,000 tons/year in 2023, and will release part of the production capacity in the second half of 2024 and will complete construction in 2025. Considering the company's already mass production of high-spherical ultrafine ferrosilicon chromium powder and the introduction of mass production of amorphous nanocrystalline powder, it is expected that the expansion of the metal soft magnetic powder business will further optimize and enhance the company's growth momentum.

Profit margins are continuously optimized, and the company has strong resilience to risk and growth. The company's gross profit and net profit levels continued to be optimized. In '23, the company's comprehensive gross margin rose to 39.6%, net interest rate increased to 22.1%, and ROE rose to 14.5%, which comprehensively reflected the company's product advantages, cost control advantages and high return advantages. Furthermore, the company's balance ratio fell to 24.06%, indicating that the company is resilient to risk and can continue to expand.

The company has built a strong competitive advantage in multiple dimensions. As a leading enterprise in industrial chain integration in the field of metal soft magnetic materials, the company has obvious technical advantages and model advantages, and already has a full product line layout that changes from the power generation end to the load end. The new metal magnetic materials manufacturing industry is in a period of high prosperity and the industry has high industry barriers (upstream capital, technology and mass production barriers, downstream customer certification barriers), making it difficult for new enterprises to form effective competition in the short term. The company has strong brand influence, high expansion and high viscosity customer base, and the new metal powder materials industry has received national key policy support.

Profit forecast and investment rating: We expect the company to achieve operating income of 1,722 billion yuan, 2,377 billion yuan, and 3,019 billion yuan respectively; net profit to mother of 369.5 million yuan, 506 million yuan and 597 million yuan respectively; EPS is 1.86 yuan, 2.54 yuan and 3.0 yuan respectively, corresponding PE is 28.95x, 21.15x and 17.92x, respectively, maintaining the “recommended” rating.

Risk warning: Raw material prices fluctuate greatly, market demand falls short of expectations, production capacity release falls short of expectations, risk of falling gross profit, risk of technological innovation, inventory risk, market competition and policy risk.