Matters:

The company announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 360 million yuan, an increase of 11.20% year on year; net profit attributable to shareholders of the parent company was 32.66 million yuan, an increase of 40.25% year on year. The company plans to pay a cash dividend of 1.5 yuan (tax included) for every 10 shares to all shareholders, not to use the Provident Fund to increase share capital, and not to give bonus shares. In the first quarter of 2024, the company achieved revenue of 81.86 million yuan, an increase of 14.22% year on year; net profit attributable to shareholders of the parent company was 7.51 million yuan, an increase of 112.28% year on year.

Ping An's point of view:

Overcoming adverse factors such as the downward cycle of the industry, the company achieved steady growth in performance: in 2023, the company achieved revenue of 360 million yuan (+11.20% YoY), net profit of 32.66 million yuan (+40.25% YoY), net profit after deducting 27.16 million yuan (+88.60% YoY), mainly because the company overcame adverse factors such as the downturn cycle in the semiconductor industry, and continued to release production capacity. While further consolidating its position as the main supplier in the traditional packaging chemicals market, it continued to strengthen products in the field of advanced packaging and wafers Development and market expansion efforts. In 2023, the company's overall gross margin and net margin were 27.18% (+3.85pct YoY) and 9.07% (+1.88pct YoY), respectively. On the cost side, the company's cost rate for the period was 19.56% (+1.65pct YoY), with sales expenses, management expenses, financial expenses, and R&D expenses being 5.59% (+0.05pct YoY), 5.67% (-0.09pct YoY), -0.78% (-0.07pct YoY), and 9.08% (+1.76pct YoY), respectively. In the 2024Q1 single quarter, the company achieved revenue of 81.86 million yuan (+14.22% YoY), net profit of 7.51 million yuan (+112.28% YoY), and net profit of 3.6 million yuan (+5.51% YoY) after deducting non-return to mother. The gross margin and net margin for the Q1 quarter were 26.53% (+0.6pct YoY, +2.06pct QoQ) and 9.17% (+4.23pct YoY, -3.43pct QoQ), respectively.

Core sector products continue to grow, and the product structure continues to be optimized: the domestic semiconductor industry is generally recovering, demand from downstream manufacturers is picking up, the company's market share in advanced packaging, wafers, etc. continues to increase, and electroplating chemicals are also making progress in new energy fields such as photovoltaics. Looking at the revenue structure, in 2023, 1) Sales revenue of electroplating solutions and supporting reagents was 179 million yuan, up 21.80% year on year; main business revenue accounted for about 51.85%, gross margin was 40.05%, down 3.55pct year on year; 2) Sales revenue of photoresist and supporting reagents was 68.77 million yuan, up 18.70% year on year, and main business revenue accounted for about 19.94%. The gross margin was 28.27%, up 4.60 pcts year on year, of which photoresist sales revenue was 12 million yuan, up 38.65% year on year; 3) The sales revenue of supporting materials for electroplating was 94.74 million yuan, a year-on-year decrease of 15.70%. The main business accounted for about 27.47% of revenue, and gross margin was 1.65%, an increase of 5.17 pcts over the previous year.

Investment advice: Based on electroplating solutions and supporting reagents in the traditional packaging field, the company has occupied the position of the main supplier of electroplating solutions and supporting reagents for traditional packaging in China, and has gradually developed into other application fields along the industrial chain. It has gradually covered electroplating processes in the fields of passive components, PCBs, advanced packaging, wafer manufacturing, photovoltaics, etc., and has further expanded its product line through photoresist and supporting reagent products. Based on the latest financial reports, we adjusted the company's profit forecast. We expect the company's EPS to be 0.57 yuan (previous value was 0.63 yuan), 0.85 yuan (maintenance) and 1.16 yuan (new) respectively, and PE corresponding to the closing price on April 26 is 54.7X, 36.7X, and 26.9X, respectively. We are optimistic about the potential for domestic manufacturers to increase their market share in the advanced packaging production expansion wave, and maintain the company's “recommended” rating.

Risk warning: 1) Risk that industry demand falls short of expectations: For example, demand for terminals such as consumer electronics is picking up or the semiconductor industry's recovery falls short of expectations, and demand from downstream customers in the chip industry chain is declining, which will adversely affect the company's business development and profitability. 2) Risk of customer certification and mass production falling short of expectations: If the customer delays the launch schedule, the certification/introduction of the company's new products falls short of expectations, and related products cannot enter the batch supply stage, it will adversely affect the company's future revenue growth. 3) Risk of increased market competition: If the company is unable to continuously update technology and develop products according to market demand and maintain product and technical competitiveness, the company may not be able to effectively compete with domestic and foreign companies, thereby adversely affecting the company's market share, market position, and business performance.