Core views
The company achieved total revenue of 5.727 billion yuan in 2023, an increase of 11.21% over the previous year; net profit to mother was 1,581 billion yuan, an increase of 5.07% over the previous year. 2024Q1 achieved total revenue of 1,564 billion yuan, an increase of 31.49% year on year; net profit to mother was 433 million yuan, an increase of 35.31% year on year. The company's core product, MLCC, has achieved technological breakthroughs, and can achieve complete mass production of products with a dielectric layer thickness of 1 micron. The number of stacked layers can reach more than 1000 layers. The products cover mainstream specifications of 0201 to 2220 sizes. The company's electronic components and materials business revenue increased 50.32% year-on-year in 2023. Looking forward to the future, as downstream market demand is gradually repaired and the company's share increases, the electronic components and materials business will help grow in the long term.
occurrences
The company released its 2023 annual report and 2024 quarterly report. The results are in line with expectations. The company achieved total operating income of 5.727 billion yuan in 2023, an increase of 11.21%; net profit to mother was 1,581 billion yuan, an increase of 5.07% year on year; net profit after deducting non-return to mother was 1,221 billion yuan, an increase of 0.05% year on year. The company achieved total revenue of 1,564 billion yuan in a single quarter of 2024, up 31.49% year on year and 3.53% month on month; net profit to mother of 433 million yuan, up 35.31% year on year and decrease 1.35% month on month; net profit after deducting non-return to mother was 378 million yuan, up 57.40% year on year and 10.20% month on month. The results were in line with our previous expectations.
Brief review
Revenue and profit for 2023 are in line with expectations. The electronic components and materials business grew rapidly. The company achieved revenue of 5.727 billion yuan in 2023, an increase of 11.21% year on year; net profit to mother was 1,581 billion yuan, up 5.07% year on year. The company achieved revenue of 1,564 billion yuan in the first quarter of 2024, up 31.49% year on year; net profit to mother was 433 million yuan, up 35.31% year on year. The company's revenue and net profit due to the 2023 Annual Report and First Quarter Report both achieved year-on-year growth, mainly due to the slow recovery of the global economy and the gradual improvement of the domestic electronics industry. With the recovery of demand in consumer electronics and other related industries, the company's products have seen a steady increase in orders for some products due to technological innovation and quality improvement, and sales volume achieved rapid year-on-year growth. By business, in 2023, the company's electronic component materials, communication components, wiring terminals and other main businesses achieved revenue of 2,196 billion yuan/1,987 million yuan/109 million yuan/1,434 billion yuan respectively, accounting for 38.35%/34.70%/1.91% and 25.40% of overall revenue respectively. Among them, revenue from electronic components and materials grew by more than 50% year on year. We think it mainly benefited from the increase in MLCC output value. We think it mainly contributed to the growth of fuel cell diaphragm panels and other new materials business. The communication components business merged the original PKG and optical fiber connector parts. The year-on-year decline in revenue was close to 20%, mainly due to the slowdown in downstream communication infrastructure construction and inventory removal in the crystal oscillator industry.
The share of electronic components and materials increased, and gross margin declined. In terms of overall profitability, the company's gross margin in 2023 was 39.83%, down 4.27pcts year-on-year. On the one hand, due to weak demand for the company's downstream communications business (including optical fiber connector inserts and sockets, and PKG packaging bases), there was a slight price reduction for communication products. On the other hand, the gross margin of the electronic components and materials business was lower than the overall gross profit margin of the communications business. The increase in the proportion lowered the company's overall gross profit margin. 2024Q1's comprehensive gross margin was 40.14%, up slightly from 23Q4, mainly due to a slow recovery in downstream demand, a slow increase in the operating rate of various production lines, and improvements on the cost side. Looking forward to the future, the company's communications business is slowly picking up, and MLCC product prices are stabilizing. We believe that the overall gross margin will remain at a reasonable level.
In terms of management capacity, the company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio in 2023 were 1.30%/7.50%/9.53%/-2.82%, respectively. The cost rate for the period was 15.51%, down 0.31 pct from the previous year, and remained stable overall.
Downstream demand is picking up+the company's strong alpha. MLCC helps long-term growth. Against the backdrop of weak market demand in 2023, the company's electronic components and materials business revenue still increased 50.32% year on year, highlighting the company's strong alpha in the business. In 2024, the global economy as a whole is still recovering, and the domestic electronics industry will continue to recover. The company's MLCC products continue to develop further in the direction of miniaturization, high volume, high frequency, high reliability, high pressure, etc. In 2023, mass production of MLCC with a dielectric layer thickness of 1 micron was successfully achieved. The number of stacked layers can reach more than 1000 layers, and the products cover mainstream size specifications from 0201 to 2220. With technological breakthroughs and product quality improvements, the recognition of the company's MLCC products in the market has greatly increased. In the future, the company's market share in MLCC high-capacity products will increase steadily, helping the company grow in the long term.
Profit forecasting and valuation
Looking forward to the future, we believe that as downstream demand for the company's products gradually picks up and the MLCC business continues to grow rapidly, the company's revenue and profit are still expected to continue to improve quarter by quarter. We expect the company's revenue for 2024-2026 to be 68.81/87.08/99.90 billion yuan, respectively, and net profit to mother of 18.74/24.12/2,696 billion yuan, respectively. The corresponding P/E is 28.55/22.18/19.85 times, respectively, maintaining a “buy” rating.
Risk warning
1. Downstream demand falls short of anticipated risk. The company's performance is strongly correlated with downstream communications and consumer electronics products. If demand recovery falls short of expectations, it will adversely affect the company's performance.
2. Raising capital to increase production capacity falls short of the expected risk. Since the company's product production process is relatively complicated, production capacity improvement, customer certification, etc. also take a certain amount of time. If the new construction project cannot advance according to the plan or meet the customer's demand for production capacity, product specifications, etc., it will cause the project production capacity to not be released according to the plan or achieve the expected target, and product competitiveness will be weakened, which in turn is not conducive to the digestion of the new production capacity of the project and the achievement of the expected benefits of the project.
3. Risk of falling unit sales prices. In the next few years, with the release of production capacity expansion by various MLCC manufacturers, new downstream demand will gradually be met. In the future, it is not ruled out that MLCC will continue to decline in sales unit prices, which will adversely affect the company's operating performance.