Incident: The company achieved revenue of 12.04 billion yuan in 2023, -4.4% year-on-year, net profit of 2.53 billion yuan, -37% year-on-year, and deducted non-net profit of 2.46 billion yuan, or -36% year-on-year. Among them, Q4 revenue was 2.95 billion yuan, -11%/-16% month-on-month, net profit attributable to mother of 370 million yuan, -52%/-50% year-on-month, after deducting non-net profit of 407 million yuan, or -44%/43% month-on-month. Q1 achieved revenue of 2.33 billion yuan, -9%/-21% YoY, net profit to mother of 160 million yuan, or -76%/-58% YoY.
The price of diaphragms is declining, and profits are under pressure: the company shipped 6.2 billion square meters of wet method (A+B products) in 2023, achieving operating income of 10.08 billion yuan, a year-on-year decrease of 5.22%. 24Q1 revenue declined year-on-month, mainly due to oversupply in the industry and intense price competition. The 24Q1 gross profit margin was 19%, the net profit margin was 7% month-on-month, and -18pct/-6pct compared to the same period, mainly affected by price cuts and lower capacity utilization in the off-season.
Domestic demand recovered markedly in March and April. The pace of release of new models accelerated and the impact of policy incentives. Overall market demand improved in the second half of the year, and the increase in capacity utilization is expected to drive the company's profit recovery.
New production capacity was gradually put into operation, and operating cash flow increased month-on-month: 1) In 2023, the company's projects under construction were 6.21 billion yuan, reaching a peak in 23Q2. Affected by changes in the domestic supply and demand structure and downward pressure on the price side, the growth rate of production capacity construction slowed down, and new production lines were gradually put into operation, and production capacity was abundant. 2) Inventory in 2024Q1 was 3.4 billion yuan, up 12.8% month-on-month. Inventory utilization and turnover efficiency declined due to the impact of the Q4 and Q1 downstream companies' inventory removal cycles, company stocking, and the industry's off-season. 3) The net cash flow from 2024Q1's operating activities was 460 million yuan, -37.22% year-on-year. The reason was that the net outflow increased due to material-side payments to suppliers, resulting in a net cash flow inflow over the previous month.
Vigorously enhance technological competitive advantage and lay out overseas markets: the European region will build a Hungarian production base to quickly meet customer needs within 2024; US project construction continues to advance, with a total investment of 276 million yuan, releasing an annual production capacity of 700 million square meters for 14 coated diaphragm production lines. The company laid out the lithium battery fast charging market and independently developed a new generation of ultra-high strength and high porosity base films; cooperated to develop semi-solid electrolyte coated diaphragms and high-end products. The first phase of factory construction was completed, and 2 high-performance coating films entered trial production.
Investment advice: The company focuses on technology research and development, lays out a differentiated product matrix, continuously increases global market share, and maintains good profits in fierce market competition. We expect the company to achieve operating income of 148.54/205.29/23.777 billion yuan and net profit to mother of 18.13/24.98/2,942 billion yuan in 2024-2026, corresponding PE 21.31/15.47/13.13 times, respectively, to maintain a “neutral” rating.
Risk warning: risk of policy changes; risk of increased market competition; risk of price fluctuations of major raw materials; risk of technological progress and product substitution.