Incident: Recently, the company released its 2023 annual report and report for the first quarter of 2024. In 2023, the company achieved revenue of 2,602 billion yuan, +11.89%; net profit to mother of 255 million yuan, -3.35% year on year; net profit after deducting non-return to mother of 156 million yuan, -28.65% year on year; net profit to mother of 60 million yuan, +7.16% year on month, -4.33% month on month; net profit not attributable to mother 70 million yuan, up 94.64% year on year, and +349.86% month on month.

Key points of investment:

24Q1 revenue continued the year-on-month growth trend and continued to increase investment in R&D. Benefiting from the increase in the global market share of the ultra-high purity target business and the accelerated expansion of the semiconductor components business, the company's 23Q4 revenue increased 17.29% and 14.59% year-on-month respectively, and 24Q1 revenue continued the year-on-month growth trend. The company achieved gross margin of 31.97% in 24Q1, up 0.17% year on year and 2.98% month on month; 24Q1 net margin was 5.28%, down 3.88% year on year and 1.05% month on month. The company continued to increase R&D investment. The R&D expenditure in 2023 reached 172 million yuan, an increase of 37.87% over the previous year. The R&D expenses for the first quarter of 2024 were 55.49 million yuan, an increase of 50.89% over the previous year.

The ultra-high purity target business bucked the trend and accelerated the global strategic layout. The company has long been deeply involved in the field of ultra-high purity metal sputtering targets for semiconductors, and has accumulated technology, experience and customer advantages. It has laid out various products such as ultra-high purity aluminum targets, titanium targets and ring parts, copper targets and ring parts, tungsten-titanium targets, nickel targets and tungsten targets, and continues to increase its global market share. The company plans to build a modern semiconductor target manufacturing plant in Korea. The construction of the Korean production base will help the company achieve a global strategic layout and increase the market share and international competitiveness of its products. In the context of a downward cycle in the global semiconductor industry in 2023, the company's ultra-high purity target business bucked the trend and achieved revenue of 1,673 billion yuan, an increase of 3.79% over the previous year; downstream demand gradually picked up in 2024, and the company's target materials business is expected to continue to grow.

The release of semiconductor components has accelerated, and third-generation semiconductor products are progressing smoothly. The semiconductor parts business is closely related to the target material business. Benefiting from competitive advantages in the field of ultra-high purity targets, the company's semiconductor parts business continued to grow rapidly. In 2023, the company's semiconductor parts business achieved revenue of 570 million yuan, an increase of 58.55% over the previous year; in 2023, the company actively promoted production capacity construction in Yuyao, Shanghai, Hangzhou, Shenyang and other bases, and comprehensively laid out core functions such as metallic and non-metallic semiconductor components, gas distribution plates, and Si electrodes to achieve domestic replacement and market Recognition continues to increase. The company is progressing smoothly in the field of third-generation semiconductor materials. High-end copper-clad ceramic substrates, the main product of the holding subsidiary Ningbo Jiangfeng Tongxin, have received initial market recognition and can be widely used in fields such as third-generation semiconductor chips and new high-power power electronic devices IGBT. The silicon carbide epitaxial wafer products produced by the holding subsidiary Jingfeng Xinchi have been recognized by many customers.

Profit forecasting and investment advice. The company is the world's leading manufacturer of ultra-high purity targets for semiconductors. It has accumulated technology, experience and customer advantages, and is expected to continue to increase its global market share; semiconductor components are the key to the evolution of core semiconductor equipment technology and have broad domestic replacement space. The company continues to expand production capacity and rich product portfolio, and the semiconductor parts business is expected to continue to grow rapidly. We expect the company's 24-26 revenue to be 31.41/40.91 billion yuan. The net profit for 24-26 is 3.45/4.73/622 million yuan The corresponding EPS was 1.30/1.78/2.34 yuan, and the corresponding PE was 36.26/26.41/20.07 times, maintaining the “buy” rating.

Risk warning: Industry competition increases risks, downstream demand falls short of expectations, product localization falls short of expectations, and the risk of raw material price fluctuations.