2023 results were slightly lower than our expectations, and 1Q24 results exceeded expectations
The company announced 2023 and 1Q24 results: in 2023, the company achieved revenue of 4.738 billion yuan, +11.2% year-on-year; realized net profit to mother of 579 million yuan, +10.5% year-on-year. Among them, 4Q23 achieved revenue of 1,196 billion yuan, or +9.5% year-on-month, and -1.9% month-on-month; realized net profit of 99 million yuan, +62.3% year-on-year, and -29.0% month-on-month. The performance was slightly lower than our expectations, mainly due to the downturn in the semiconductor industry cycle, which affected the growth in demand for electronic materials. The total of the company's four expenses in 2023 was 731 million yuan, +24% year-on-year. Among them, sales/management/finance/R&D expenses were +26.8%/+6.58%/-46.02%/+48.78% year-on-year, respectively. The increase in sales and R&D expenses was mainly due to expanding sales channels and increasing R&D investment.
1Q24 achieved revenue of 1,618 billion yuan, +51.1% YoY, +35.3% month-on-month; realized net profit of 246 million yuan, +42.2% YoY and +148.7% month-on-month; performance exceeded our expectations, mainly due to confirmed revenue from LNG insulation materials exceeding expectations.
Development trends
Revenue from LNG insulation materials has more than doubled, and revenue from other businesses has remained stable. The top three segments of the company's revenue in 2023 are still semiconductor chemical materials, photoresists and supporting reagents, and LNG insulation composites, accounting for 24%/28%/18% respectively. In 2023, the company's important subsidiaries Korea Xianke/Comet/EMTIER/Yakke Natural Gas achieved net profit of 2.28/1.22/0.95/0.56 billion yuan respectively, -19%/-16%/-7%/+42% year-on-year respectively. By product, the revenue of the company's semiconductor chemical materials/photoresists and supporting reagents/electronic special gas/LNG insulation materials was -0.5%/+3.6%/-11.6%/+114.5% year-on-year, with gross margins of 50%/19%/37%/36%, respectively. The gross margin of photoresists and supporting reagents was +7.5ppt year-on-year, and the others remained stable.
The peak of LNG ship deliveries is yet to come, and the company's plate business is expected to maintain rapid growth. According to Clarkson, the number of orders for Chinese LNG carriers in 2022/2023 was 55/13, respectively, and the total number of orders in progress by Chinese shipbuilders as of the end of 2023 was 71. LNG shipbuilding is a long-tail cycle industry, which is limited by the production capacity of domestic shipyards. We expect LNG carrier deliveries to peak in 2026-2027, and the company's business in this sector is expected to maintain strong growth.
New domestic production capacity for electronic materials is about to contribute to the increase. According to the announcement, the company's precursor and photoresist project at the Jiangsu Xianke Yixing plant will reach the intended usable state in March 2024. We expect that this production capacity will significantly increase the domestic market share of the corresponding products after batch delivery.
Profit forecasting and valuation
We basically maintained the 2024 profit forecast of 800 million yuan in net profit and introduced the 2025 profit forecast of 1.08 billion yuan. The current stock price is 35/27x the 2024/2025 P/E, respectively. Maintaining an industry rating and target price of 71.6 yuan, corresponding to 41 times the price-earnings ratio of 2024 and 32 times the price-earnings ratio of 2025, there is room for an increase of 18% compared to the current stock price.
risks
The increase in product penetration fell short of expectations, and the recovery of the semiconductor industry fell short of expectations.