The company released its 2023 annual report and 2024 quarterly report. For the full year of 2023, the company's revenue fell 15.26% to 4.305 billion yuan, net profit to mother increased 5.78% to 763 million yuan, and net profit after deducting non-return to mother increased 0.50% to 718 million yuan. The company plans to distribute a cash dividend of 3 yuan (tax included) for every 10 shares. In the first quarter of 2024, the company achieved a 9.19% drop in operating income to 938 million yuan, a 44.32% decrease in net profit to the mother of 98 million yuan, and a 49.08% decrease in net profit after deducting non-attributable net profit of 49.08% to 89 million yuan. We are optimistic about the growth space brought about by the company's launch of various new materials, and maintain the purchase rating.
Key points to support ratings
Functional materials performed steadily in 2023, revenue in the life sciences and pharmaceuticals sector declined, and overall gross margin increased. In 2023, the company's revenue also fell 15.26% to 4.305 billion yuan, of which revenue for the fourth quarter was 1,130 billion yuan, down 8.64% year on year, up 2.51% month on month. By business, in 2023, the company's functional materials products achieved revenue of 3.366 billion yuan, a year-on-year increase of 12.25%, and a year-on-year increase of 0.99pct. Among them, the OLED materials business continued to grow as the main driver. In 2023, the subsidiaries Jiumu Chemical and March Technology achieved revenue of 911 million yuan (+21.24%), 109 million yuan (+73.19%), and net profit of 223 million yuan (+16.49%) and -08 billion yuan (-0.05 billion yuan in the same period last year) . Life science and pharmaceutical products achieved revenue of 882 million yuan, down 56.67% year on year, gross margin of 36.22%, up 1.10 pct year on year. Among them, subsidiary MP Biomedicals, LLC's revenue decreased 69.70% to 556 million yuan, and net profit also decreased 94.90% to 13 million yuan. The pressure on the life science and pharmaceutical sector is mainly due to a contraction in downstream demand for antigen test kit products, and other businesses have maintained steady development. The company's gross margin in 2023 was +2.75pct YoY to 42.49%. In terms of the period cost ratio, the company's sales/management/R&D/finance expenses ratio in 2023 was -0.30pct/+0.30pct/+1.43pct/+1.07pct to 3.10%/8.41%/8.47%/-0.27%, respectively.
Changes in downstream demand and increased R&D investment put pressure on 24Q1 revenue performance. The company's revenue for the first quarter of 2024 was 938 million yuan, down 9.19% year on year and 16.98% month on month; net profit to mother was 98 million yuan, down 44.32% year on year and 47.58% month on month. 24Q1's gross margin was 41.57%, up 0.94 pct year over year. The decline in the company's profit is mainly due to changes in downstream demand in the fields of pharmaceuticals and environmental protection materials. 2. Increase investment in R&D, and the 2024Q1 R&D cost rate increased by 4.22pct to 10.50% year-on-year.
The company lays out new materials in various fields and actively explores the pharmaceutical market. In the field of OLED materials, the company has sufficient R&D and production capacity reserves, and is expected to continue to expand in the future. March Technology already has several OLED finished materials with independent intellectual property rights through customer verification and supply. The “Comprehensive Technology Research and Development Center and High-end Production Base Project for New Optoelectronic Materials” was launched in 2023, and the first phase of the project is being actively promoted; Jiumu Chemical launched the “Jiumu Chemical Production Base A04 Project” and plans to invest 145 million yuan to expand the production capacity of OLED materials before sublimation. In the field of other electronic information materials, the company can currently cover most high-end polyimide monomer products, and existing products can be supplied in batches; in March, TFT polyimide and PSPI finished materials with independent intellectual property rights of TFT were supplied at downstream panel factories; the company's thermoplastic polyimide material PTP-01 has achieved pilot product supply, and the market space is broad. In terms of new energy materials, the company's “fluorine-free high-stability multi-block fuel cell proton membrane material project” has sold pilot products, and is also developing photovoltaic film materials. It is expected that mass supply will be achieved after certification is passed. In terms of life science and medicine, the company's “Pharmaceutical Formulation Second Workshop Project” was put into use in 2023; Wanrun Pharmaceutical's tranexamic acid tablets were approved as the first generic drug in China to be approved as a generic drug that passed the consistency evaluation, and the CMO product R-PZQ API was approved by the European Human Medicines Commission. With the gradual implementation of new products and projects in various sectors, the company is expected to achieve long-term growth.
valuations
The profit forecast was adjusted in view of major changes in the company's downstream demand for environmental protection and pharmaceutical products. EPS is expected to be 0.83 yuan, 0.97 yuan, and 1.14 yuan respectively in 2024-2026, and the corresponding PE is 14.1 times, 12.0 times, and 10.2 times, respectively.
I am optimistic about the increase brought about by the company's gradual commissioning of various new materials, and maintain the purchase rating.
The main risks faced by ratings
Project commissioning fell short of expectations; product prices fluctuated greatly; exchange rate risk.