24Q1 The company lost 11 million yuan and maintained the “increase in holdings” rating

The company achieved revenue of 131 million yuan in 24Q1 (yoy -10.32%, qoq -35.00%); net profit to mother of -0.11 million yuan (23Q1 was -209 million yuan, 23Q4 was 212 million yuan). We maintain our profit expectations. We expect the company's net profit to be RMB 0.28/0.48/0.66 billion for 24-26. Using the segmented valuation method, the company's PB hub for the past 10 years has given PB 5X to the germanium resource business; considering that germanium components and semiconductor material assets are light, the company estimated the market value of germanium resources at about 7.217 billion yuan using the 24-year BPS forecast 2.21 yuan. The 24-year net profit of germanium components and semiconductor materials was 0.21/0.07 billion yuan. According to comparable company Wind's average expectations, PE (24E) was given 34/38X, corresponding to a market capitalization of 982 million yuan, a total market value of 8.199 billion yuan, and a target price of 12.55 yuan (previous value of 12.55 yuan), maintaining an increase in holdings rating.

Price increases are hard to beat volume declines, and the company's gross profit is under year-on-year pressure

In terms of price, sales prices of 24Q1 material-grade germanium and infrared-grade germanium increased; sales prices of photovoltaic grade germanium, compound semiconductor materials, and fiber-grade germanium declined, ultimately increasing revenue by 454,600 yuan. In terms of sales, sales of material-grade germanium, infrared-grade germanium, and fiber-grade germanium declined in 24Q1; sales of photovoltaic grade germanium and compound semiconductor materials increased, ultimately reducing revenue by 15.482 million yuan. That is, the negative impact of changes in the company's sales volume is greater than the positive impact of prices. As a result, the company's 24Q1 revenue and gross profit decreased by 10.32% and 10.35%, respectively, over the same period last year, but gross margin remained basically the same.

Expense rates increased during the period, further causing the company to lose money

The company's expense ratio increased by 7.45pct year-on-year to 31.94% during the 24Q1 period, and all four fees increased. Among them, the sales expense ratio increased by 0.63 pct to 1.92% year on year, mainly due to the increase in cargo storage service fees and product sample delivery costs; the management fee rate increased by 3.57 pct to 16.50% year on year; the R&D cost rate increased 1.52 pct to 7.88% year on year; and the financial expense ratio increased 1.73 pct to 5.64% year on year, mainly due to the increase in financing interest expenses. In the end, the company's net profit to mother was -0.11 billion yuan.

Demand is improving, exports are increasing, and supply is expected to start rising. According to Wind, germanium prices have been rising since March 18, and the increase has reached 2.6% so far. According to SMM, on the supply side, China accounted for 60% of germanium production in '22. China has controlled germanium and other related phases since August 1, '23, so the market expects global germanium supply to be tight. In terms of exports, with the Ministry of Commerce's approval of license applications for export of gallium and germanium-related items by some enterprises that meet the requirements, exports are being resumed one after another; according to customs data, China's cumulative exports of forged and rolled germanium and its products increased by 46.1% month-on-month in 24Q1. On the demand side, downstream demand for germanium mainly includes infrared, optical fiber, PET, photovoltaics, etc., and has now improved:

The cumulative PV installed capacity in 24Q1 was +35.9%, and the implementation of policies such as the “Guangdong Province's Implementation Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” is expected to drive an increase in demand for fiber-optic germanium. As demand improves, exports increase, and supply is expected to be tight, germanium prices may start to rise, and the company is expected to benefit from price increases at that time.

Risk warning: downstream demand fell short of expectations, raw material prices fluctuated greatly, and industry policies changed.