Incidents:
On April 23, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 2,467 billion yuan, an increase of 7.22% over the previous year, achieved net profit of 127 million yuan, an increase of 97.15% over the previous year, and realized net profit withholding of 131 million yuan, an increase of 115.02% over the previous year. The gross margin of the energy saving and environmental protection business improved, cost control improved, and profitability increased significantly.
With 2024Q1, the company achieved operating income of 642 million yuan, up 7.50%/11.87% year-on-year respectively, and achieved net profit of 55 million yuan, a year-on-year decrease of 30.87%, changing from negative to positive month-on-month. Net profit without return to mother was 51 million yuan, a year-on-year decrease of 27.03%, and changed from negative to positive month-on-month.
The profit margin of the energy saving and environmental protection business has expanded. The main business of the company with leading polymer materials technology includes the three major sectors of energy saving and environmental protection, new electronic materials, and polymer composites. Among them, the energy saving and environmental protection sector mainly includes industrial heat transfer and energy saving, water treatment, metal extraction, etc. The sector achieved operating revenue of 1,676 billion yuan in 2023, an increase of 8.94% year on year, achieving a gross profit margin of 24.00%, an increase of 2.93 pct over the previous year, effectively driving the company's consolidation and profitability improvement. The polymer composites sector, Cobos PVC structural foam, Zhaoheng Technology PMI foam and other products are in a leading position in the domestic industry. Major customers cooperate steadily and actively explore overseas markets, and the market share is expected to increase.
The target material business is under pressure in the short term and is expected to benefit from long-term demand growth. The company's new electronic materials business uses sputtering targets as its main product, mainly for display panels and photovoltaic cells. The business segment achieved revenue of 473 million yuan in 2023, a decrease of 0.38% year on year, and achieved a gross profit margin of 19.37%, a year-on-year decrease of 2.21pct. Localization of the display panel industry chain is accelerating, local target suppliers are becoming more mature in technology, and sputtering targets have more room to replace imports. The pace of iteration of new technologies in the photovoltaic field is accelerating. Technology routes such as HJT, XBC, and perovskite are in the early stages of industrialization. There is considerable room for future growth, and the company is expected to fully benefit from large-scale deployment of the new technology.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 30.7/38.8/4.85 billion yuan respectively, with year-on-year growth rates of 24.3%/26.5%/25.1%, net profit to mother of 2.3/3.4/4.4 billion yuan respectively, year-on-year growth rates of 79.2%/48.1%/29.8%, EPS 0.25/0.37/0.48 yuan/share, respectively, and 3-year CAGR of 51.1%. The company's polymer composites and new electronic materials business has technical advantages, and profits are under heavy pressure due to short-term demand. With the domestic replacement of target materials and the HJT battery production capacity investment process, it is expected that the volume will be supported one after another. Referring to comparable company valuations, we will give the company 30 times PE in 2024, with a target price of 7.54 yuan, maintaining a “buy” rating.
Risk warning: Progress in heterojunction technology falls short of expectations and affects industry demand, new business orders fall short of expectations, and fluctuating raw material prices.