Core views

1. 2024Q1 achieved total revenue of 1.10 billion yuan, a year-on-year increase of 37.4%, and revenue reached a new high; net profit to mother was 81 million yuan, an increase of 320.8% over the previous year. The company indicated in its annual report that it is expected to achieve revenue of 4.85 billion in 2024. We believe that according to the company's development trend, 4.85 billion revenue is off the lower limit. With the rapid development of the three businesses, the company is expected to continue to grow rapidly in the future.

2. The dividend ratio in 2023 was 62%, and the dividend was nearly 60% almost every year in the 20 years since listing to protect shareholders' rights and interests. Let's assume that the company's dividend rate in 2024 is 60%. Based on the company's current market value, the company's dividend rate can reach 3.4%.

3. As the single champion in powder metallurgy, the company has built a new material technology platform, broken through many key technologies, and applied to high-end mobile phones, chip inductors, and robot joint motors, which is expected to continue to increase the company's valuation.

occurrences

The company released its 2023 annual report and the first quarter of 2024

In 2023, the company achieved total revenue of 3.86 billion yuan, an increase of 3.6% over the previous year; net profit to mother was 198 million yuan, an increase of 27.1% over the previous year. 2024Q1 achieved total revenue of 1.10 billion yuan, an increase of 37.4% over the previous year; net profit to mother was 81 million yuan, an increase of 320.8% over the previous year.

Brief review

1. The company's revenue reached a new high. As a result, Spark's subsidiary opened a second growth pole. During the reporting period, the operating revenue of P&S and SMC technology platforms reached the highest record in the same period. The MIM technology platform's revenue rebounded steadily in the second half of the year due to the recovery of the downstream consumer electronics industry and the impact of large customer folding machine projects. During the reporting period, revenue for the Q3 and Q4 quarters of 2023 continued to exceed 1 billion yuan, and reached a new high of 1.1 billion yuan in Q1.

(1) The 2024 revenue guide is 4.85 billion, which shows the company's confidence that the company is expected to achieve revenue of 4.85 billion in 2024. We believe that according to the company's development trend, the revenue of 4.85 billion yuan is below the lower limit. With the rapid development of the three businesses, the company is expected to continue to grow rapidly in the future.

(2) Benefiting from the departure of automobiles and the exit of overseas competitors, the company's P&S business grew significantly in a wide range of downstream applications of powder metallurgy. The company has been deeply involved in the P&S business for many years and consolidated its leading position. The products are mainly supplied to high-end customers in the domestic and foreign automobile industry. Powder metallurgy materials have the advantages of high performance and low cost, and their application in automobiles is becoming more and more extensive. In recent years, foreign powder metallurgy manufacturers have gradually reduced their investment and exit. Foreign customer supply chain transfers, compounded the rapid growth of Chinese automobile exports, drive the steady growth of the company's P&S business. The company's gross profit margin for the P&S business in 2023 was 23.51%, a significant increase of 3.63pct compared to 2022.

(3) The dividend ratio in 2023 was 62%, and the dividend was nearly 60% almost every year in the 20 years since listing. The shareholders' rights protection company has continued to protect shareholders' rights since its listing in 2004, and has paid cash dividends almost every year. Since listing, it has achieved a cumulative net profit of 2.32 billion yuan, a cumulative cash dividend of 1.38 billion yuan, and a dividend rate of 59%. Moreover, dividend rates have remained high in recent years. We assume that the company's dividend rate is 60%. Based on the company's current market value, the company's dividend rate can reach 3.4%.

2. As the single champion in powder metallurgy, the company has built a new material technology platform, broken through many key technologies, and applied to high-end mobile phones, chip inductors, and robot joint motors, which is expected to continue to increase the company's valuation

(1) The innovative development of titanium alloy mass production process technology has laid a solid foundation for the company to expand large-scale use of titanium alloys in consumer electronics, medicine, etc., and has opened up another potential growth curve for the application of MIM technology. According to Bayes Consulting's forecast, the share of titanium consumption in the consumer electronics sector is expected to increase significantly from 2023, and is expected to account for 12% of domestic titanium consumption of 252,000 tons in 2025, reaching 310,000 tons. Since titanium has outstanding excellent properties such as low density, high specific strength, low thermal conductivity, good biocompatibility, good resistance to high and low temperatures, and strong corrosion resistance, and also has poor machinability, poor thermal processing performance, poor soldering, poor connectivity with other materials, and expensive disadvantages, large-scale use of titanium in the consumer electronics industry is limited, so solving technical problems such as titanium powder preparation, MIM sintering process and welding is the key to achieving the commercial application of low-cost titanium materials in the consumer electronics industry.

(2) A folding screen hinge design and assembly department has been set up, and several mobile phone hinge module production lines have passed relevant tests and verification, achieving leapfrog development from folding machine MIM parts to MIM parts+modules. Folding screen phones are the only rapidly growing segment of smartphones, and are an important model in the high-end market, and are expected to become a popular product in the high-end smartphone market in recent years. According to Counterpoint Research, the world shipped about 14.2 million folding screen phones in 2022, and by 2027, the number of folding screen phones shipped will reach 100 million units.

(3) Completed the construction of SMC's new production capacity

As of the report disclosure date, the construction of Zhejiang Dongmu Keda Plant No. 3 has been completed, the first phase of the Shanxi Magnetoelectric Company project has been completed and put into trial production, and the entire group's SMC production capacity has reached 70,000 tons/year.

(4) Four next-generation high-performance soft magnetic composites have been developed and successfully used in servers and inverters. The first KPH-HP is Dongmu Keda's third-generation gas-atomized iron silicon aluminum soft magnetic material. KPH-HP can reduce product core loss by 26% and improve product efficiency. It has been successfully used in booster inductors for 30-50kW photovoltaic inverters in well-known companies, boost inductors for new energy vehicles, and PFC inductors for variable frequency air conditioners; the second KSF-HP is Dongmu Keda's second-generation soft ferrosilicon atomized magnetic material Material, can be effective Reducing product temperature rise and improving efficiency, it has been applied in batches in mining machine power inductors and 320kW photovoltaic inverter boost inductor projects; the third KH-HP, Dongmu Keda's third-generation low-loss iron-nickel soft magnetic material, can effectively reduce product volume and improve product efficiency, and has been used in batches in server power supplies; the fourth KAM-HP, a new generation of low-loss soft magnetic materials for high frequency (50-500kHz) applications launched by Dongmu Keda. The 100kHz100mT loss of KAM-HP materials is only the first generation of superferrosilicon aluminum 24% of KS-HF materials can significantly improve product efficiency, and this material can be used in batches in energy storage projects.

(5) Chip inductor revenue increased sharply to 685.357 million yuan, in line with the gradual promotion and application of high-performance iron-nickel and iron-silicon products by the Computing Power Construction and Development Company, the gradual increase in sales of chip inductors developed for a major domestic customer, and magnetic materials related to computing power construction such as server power supplies faced a period of opportunity. During the reporting period, sales revenue of chip inductors and soft magnetic materials for server power supplies was 685.357 million yuan.

(6) Achieving robot joint motor sales revenue of 256,900 yuan, a new axial magnetic flux motor project (a new type of motor technology) was laid out, the shares of Shenzhen Xiaoxiang Electric Company were increased through Ningbo Dongmu Guangtai Company (by the end of the first quarter of 2024, Ningbo Dongmu Guangtai Company held 22% of Shenzhen Xiaoxiang Electric Company's shares), and plans to remodel a site of about 1,000 square meters in the Ningbo factory to set up a special axial magnetic flux motor assembly line. During the reporting period, the robot joint motor sales revenue was 256,900 yuan. Axial magnetic flux motors have the characteristics of light weight, small size, compact structure, high torque density and high power density. In addition to being used in driving motors for new energy vehicles, they can also be widely used in joint motors such as robots, robot dogs, and robotic yaks in the future. In 2021, YASA was acquired by Mercedes-Benz and became a wholly-owned subsidiary, and showcased its axial flux motors and technical information at the 2023 Guangzhou Auto Show. The motor weighs only 1/3 of a radial motor, and the power density is 3 times higher. This technology was first mass-produced and installed on Mercedes-Benz AMG.EA pure electric platform models. Higher energy density, reusability, weight reduction, volume reduction, complexity, and materials allow YASA axial flux technology to use fewer materials, such as copper, iron, and permanent magnets, thereby significantly reducing material costs and producing more environmentally sustainable products. The YASA motor topology also removes the stator yoke, which reduces the stator iron quality by up to 80%, which means that the power density of YASA motors is 2-3 times that of non-axial motors. Axial magnetic flux motors are particularly suitable for applications with special requirements for volume and weight, such as new energy vehicles, electric motorcycles, robots, drones, electric ships, and electric aircraft. They have good performance and broad commercial potential.

3. Looking ahead to the second quarter of this year, the company's performance is expected to continue to hit new highs. Judging from the company's three businesses, MIM is benefiting from the continued rise in folding phones, and the company's component business is gradually starting to form a new volume. The external direction should continue to grow; the metal soft magnetic business benefits from improved photovoltaic schedules, and exceeds expectations in chip inductors, servers, and home appliances; the company's PS business continues to benefit from the increase in global share, and is expected to maintain a high level of innovation in the second quarter.

Investment advice: The company's net profit due to mother in 2024-2026 is estimated to be 493 million yuan/674 million yuan/893 million yuan, respectively, an increase of 149%/37%/33% over the previous year.

The 2024/2025 PE valuation corresponding to the current stock price is 17.7/13.0/9.8 times. Considering the company's position and growth in the industry, the company is given a “buy” rating.