Matters:

The company's 2023 revenue was 5.727 billion (YoY +11.21%), net profit of 1.581 billion yuan (YoY +5.07%), net profit of non-return of 1.21 billion (YoY +0.05%); of these, Q4 revenue was $1,621 million (YoY +35.56%, QoQ +9.7%), net profit of 439 million (YoY +67.52%, QoQ +6.8%), net profit of non-return mother of 334 million (YoY +92.56%, QoQ +11%); Q1 revenue 1.564 billion (YoY +31.49%, QoQ -3.52%), net profit attributable to mother of 433 million (YoY +35.31%, QoQ -1.4%), net profit not attributable to mother of 378 million (YoY +57.4%, QoQ +10.2%).

Commentary:

The performance exceeded expectations, and Management Alpha was prominent. Q4 revenue was $1,621 million, up 9.7% month-on-month. Q1 revenue declined slightly month-on-month due to seasonality, achieving two consecutive quarters of month-on-month growth after deducting non-profit. The company's main product, MLCC, was driven by a recovery in downstream home appliances, consumer electronics, etc., and the plug-in business benefited from the gradual resumption of growth in data centers, and the company's main business benefiting from the recovery in electronics manufacturing is expected to enter the growth channel one after another.

Structural optimization gradually increased gross profit margin, and the cost-leading strategy continued to advance. The gross margin of 23Q4/24Q1 was 39.96%/40.14% respectively, up 0.08/0.18pct from month to month. We estimate that the improvement in gross margin was mainly driven by increased operating rate and product structure optimization. Looking at the cost ratio, the Q1 sales cost/management cost/R&D cost/finance expense ratio was 1.06%/5.12%/8.16%/-2.88%, respectively, down 0.42/3.75/1.75/1.5pct from month to month. Considering that the company usually has a one-time bonus accrual at the end of the year affecting management and R&D expenses, the Q1 management and R&D rate is still significantly lower than that of Q3, and the cost control effect is remarkable.

Looking ahead to Q2 and 24, the product line is expected to see a full recovery. The MLCC business is expected to lead the company out of a new growth cycle. The company actively increases its share with high-capacity technology and cost leadership, and customers with early layout are gradually entering the harvest period, and MLCC has become an important driving force for the company's revenue growth. Looking at the downstream, traditional home appliances have ushered in strong growth driven by going overseas. MLCC gross margin is expected to continue to rise in the future as high yield increases and self-control rates increase. PKG business companies are actively expanding their share with cost advantages. As demand gradually stabilizes, gross revenue margin is expected to return to growth. Driven by investment in AI computing power, the plug-in business has rebounded steadily, and demand for data centers is expected to continue to grow.

Profit forecast and investment suggestions: The Sanhuan Group's product hierarchy has improved mature, growing and emerging business layouts, advanced materials platforms have been built, and there is still huge room for growth against leading Japanese manufacturer Murata Kyocera. The company has fully proven its excellent management level and product competitiveness. Currently, passive components represented by MLCC have entered the bottom reversal zone. Judging from multiple indicators of time span, channel inventory, and product price, we expect the company's 24-26 EPS to be 1.06/1.29/1.48 yuan. Combined with the company's own business strategy, referring to comparable company valuations such as China Porcelain Electronics/Fenghua Hi-Tech, combined with the company's high historical average valuation and profit flexibility, the target price was adjusted to 31.8 yuan to maintain a “strong push” evaluation. grade.

Risk warning: Technology research and development falls short of expectations, production expansion falls short of expectations, and downstream demand falls short of expectations.