The company released its 2023 annual report, and Q4 results were dragged down by expenses: during the reporting period, the company achieved revenue of 4.738 billion yuan (YoY +11%), net profit attributable to mother of 579 million yuan (YoY +11%), net profit after deduction of 558 million yuan (YoY +1%), gross sales margin of 31.33% (YoY+0.12pct), and net profit margin of 12.67% (YoY 0.13pct). Among them, 23Q4 achieved revenue of 1,196 million yuan (YoY +9%, QoQ -2%) in a single quarter, realized net profit attributable to mother of 99 million yuan (YoY +62%, QoQ -29%), and realized net profit of 73 million yuan (YoY -27%, QoQ -46%). 23Q4's gross sales margin was 29.73%, with year-on-month changes of -0.56ct and -0.97pct, net profit margin 8.19%, and +2.50pct and -4.54pct year-on-month, respectively. In terms of expenses, 23Q4 sales, management, finance, and R&D were 0.24, 1.38, 0.20, and 73 billion yuan respectively, with month-on-month changes of -0.22, +0.49, +0.28, and +0.25 billion yuan, respectively.

The company released its 2024 quarterly report, and the performance exceeded expectations: during the reporting period, the company achieved revenue of 1,618 million yuan (YoY +51%, QoQ +35%), achieved net profit of 246 million yuan (YoY +42%, QoQ +149%), and achieved net profit without return to mother of 239 million yuan (YoY +56%, QoQ +227%), exceeding expectations for the single quarter. 24Q1's gross sales margin was 30.50%, with year-on-month changes of -1.97pct and +0.77pct, net profit margin 15.47%, year-on-month changes of -0.78pct and +7.28pct, respectively. In terms of costs, 24Q1 basically returned to normal.

Semiconductor precursors: Dragged down by production cuts in the storage industry in 23 years, the 24Q1 business returned to high growth, and global supply growth was strong. 23H2 storage giants such as Hynix and Samsung continued production reduction plans to speed up inventory removal, and the industry's operating rate remained low, leading to weakening demand on the material side. The company's precursor business was greatly affected by production cuts from major customer Hynix. According to the company's annual report, in 2023, the company's semiconductor chemical materials revenue was 1,138 million yuan (YoY -0%), gross profit margin 50.16% (YoY+0.20pct), the related subsidiary Korea Xianke had revenue of 1,231 million yuan (YoY +5%), and net profit of 228 million yuan (YoY -19%). Since 24Q1, there has been a clear upward trend in the price of memory chips, and the industry's operating rate has continued to rise. As one of the main suppliers of semiconductor precursors in the world, key customers Changxin, Changcun, and Hynix have increased production. Customers such as SMIC, Samsung, Micron, and TSMC have successively increased, and the company's precursor business has returned to a high growth state. Furthermore, AI catalyzed an explosion in demand for HBM high-performance memory chips, and the company's business is expected to benefit from the rapid release of Hynix HBM products from major customers.

Photoresist, special gas, silica powder: Restoration trends are showing, and local chemical plants in Yixing are gradually expanding. With the gradual recovery of terminal consumer electronics, the company's electronic specialty gas, silicon powder, and panel photoresist business resumed quarterly growth in 2023. According to the company's annual report, the company's photoresist and supporting reagent revenue in 2023 was 1.304 billion yuan (YoY +4%), gross profit margin 19.47% (YoY+7.47pct), related subsidiary EMTIER revenue of 1,242 million yuan (YoY -2%), net profit of 95 million yuan (YoY -7%); electronic specialty gas revenue of 438 million yuan (YoY -0%), gross profit margin 36.75% (YoY -0.32pct), related subsidiary Kemet's revenue of 488 million yuan (YoY -12%) Net profit of 122 million yuan (YoY -16%); silicon powder revenue of 188 million yuan (YoY -15%); LDS equipment sales volume of 297 units, an increase of 19 units over the previous year, revenue of 140 million yuan (YoY +25%); flame retardant revenue 2.69 yuan (YoY -35%). With the gradual expansion of local photoresist plants in Yixing, the subsequent introduction of major clients such as BOE and Huaxing Optoelectronics will accelerate the development of the panel photoresist business.

The wet electronic chemicals business is horizontally arranged, and semiconductor material platform construction continues to advance. On September 12, 2023, the company announced that its subsidiary Jacques Semiconductor purchased 75.10% of SKC-ENF's shares held by SK Enpulse at a price of no more than 50 billion won. SKC-ENF holds 100% of the shares in ISEY (Jiangsu) and ASK (Nantong). ISEE (Jiangsu) is mainly engaged in the sale of semiconductor wet chemicals such as diluents, etching liquid (BOE), and developer (TMAH). 2023H1 has revenue of 72 million yuan and a net profit loss of 2.58 million yuan; iSQ (Nantong) specializes in the production and sale of wet electronic chemicals. The main products include developer liquid, etching liquid, thinner, etc., with 2023H1 revenue of 89 million yuan and a net profit loss of 9.55 million yuan. Through this investment and acquisition, the company further enriches the range of products in the electronic materials business segment and enhances the scale effect of the business. At the same time, the company can rely on existing customer resources to accelerate the growth of the wet electronic chemicals business.

LNG insulation board: Ongoing orders are entering the delivery period one after another, and there is strong certainty about performance growth. Since 2022, due to factors such as the Russian-Ukrainian conflict and rising crude oil prices, the scale of LNG international trade has risen rapidly, and the LNG ship market has exploded. The company and Hankuk Carbon and DongsungFineTec from Korea are major global suppliers of LNG insulation panels, and the business has ushered in rapid development. Since 2022, the company has successively signed sales contracts with shipbuilders such as Hudong Zhonghua, Jiangnan Shipbuilding, and Dalian Shipbuilding. It has sufficient orders in hand and strong performance certainty. According to the company's annual report, LNG insulation material revenue in 2023 was 865 million yuan (YoY +114%), gross profit margin of 35.54% (YoY-1.54pct), and leasing and engineering services of 324 million yuan (YoY +102%). At the same time, the construction of the company's second insulation board plant has basically been completed, and large-scale production has already begun. The RSB and FSB intelligent production lines for secondary shielding materials have been completed, and trial production has been successfully carried out. Related products are being certified by GTT, and will further enhance profitability after successful introduction.

Investment analysis opinion: Maintain the company's 2024-2025 net profit forecast of 1,252 billion yuan and add the 2026 net profit forecast of 2,382 billion yuan. The current market value corresponds to PE of 23, 16, and 12X, respectively, to maintain a “buy” rating.

Risk warning: 1) downstream demand falls short of expectations; 2) raw material prices have risen sharply; 3) industry competition has intensified.