The 2023 results were largely in line with expectations, and the 1Q24 results were slightly lower than expected
The company announced 2023 &1Q24 results: revenue in 2023 -1.85% YoY to 3.52 billion yuan; net profit to mother -15.7% YoY to 492 million yuan, minus non-net profit -5% YoY to $523 million, which is basically in line with our expectations after deducting non-net profit. 1Q24 revenue was -7.3% YoY to 701 million yuan, net profit attributable to mother -4.6% YoY to 82.46 million yuan, and after deducting non-net profit -16% YoY to 81.97 million yuan, slightly lower than expected, mainly due to lower revenue growth than expected.
2023:1) Ceramic fiber sales increased steadily, and profit per ton declined slightly: in '23, the company's ceramic fiber sales volume was +8% to 540,000 tons, but due to structural changes, market competition, etc., the unit price was -3% to 5,819 yuan/ton, corresponding to +4% year-on-year to 3.1 billion yuan in ceramic fiber revenue, and its gross margin was -0.4ppt to 34.1% year over year. 2) New business injection, but negative contributions: In '23, the company acquired Yixing Gaoqi (industrial filtration) and Qinai Shanghai (automotive liners), which each contributed 142/220 million yuan in revenue, but the corresponding gross margin was only 6.7%/8.1%, contributing 34.58 million yuan in net profit in '23. 3) After the merger and acquisition, expenses increased: the company's expenses rate during the M&A environment was +1.8ppt to 15.1% year over year, with sales/management/R&D expenses +25%/+8.2%/-3.8%; 4) Net interest rate decreased slightly: due to the drag of new mergers, the net interest rate for 23 years was -2.3ppt to 14% year on year (-0.4ppt to 14.9% year-on-year after deducting non-net interest rate). 5) Cash flow is slightly under pressure: The revenue ratio in '23 was basically the same as 89% year on year, but due to accounts receivable of +152 million yuan year over year and inventory +29 million yuan year on year, operating cash flow was -284 million yuan to +331 million yuan (-49% year over year). 6) Dividends remain high: The company declared a dividend of 0.8 yuan per share, corresponding to a dividend rate of 82%, and the current stock price corresponds to a dividend rate of 6%.
1Q 24:1) Revenue declined slightly, but gross margin increased: due to the late start of 1Q24, revenue -7%; gross margin +0.4ppt to 29% year over year; 2) Cost reduction, net interest rate: 1Q company reduced sales/management expenses (-2%/-8% year over year), but due to reduced revenue and scale dilution, the period expense ratio was +0.4ppt to 11.8% year on year, but due to increased other earnings, net interest rate +0.4ppt to 11.8% year on year; 3) Cash flow improved: 1Q revenue ratio +13.8ppt to 119% yoy Drive management Cash flow was +137 million yuan to 77.76 million yuan year over year; 4) The balance ratio was -3.3ppt to 23.5% month-on-month.
Development trends
Technological empowerment supports high-end acceleration, pending a smooth transition in the organizational structure. Looking ahead to 2024, we believe that the majority shareholders are speeding up the transfer of high-end product technology to the company, which is expected to enable the company to accelerate the development of empty markets such as non-ferrous metals, metallurgy, and new energy vehicles. At the same time, we believe that if the company can effectively respond to management changes and accelerate governance transformation, the company is expected to usher in iterative improvements in technology upgrades and management optimization.
Profit forecasting and valuation
Due to pressure on demand, we lowered our 24/25 net profit 15%/11% to $53/64 billion, and the current stock price corresponds to 24/25e 12.7/10.6x P/E. We maintained our outperforming industry rating, but lowered our target price by 16% to 16 yuan, corresponding to 24/25e 15.2/12.7x P/E, implying 20% upside.
risks
Managing the risk of structural changes. Demand for ceramic fibers falls short of expectations, and integration of new businesses falls short of expectations.