The layout of Fortune Precision's new plant in 2023 had a negative impact on gross margins. The company's 2024Q1 revenue achieved rapid year-on-year growth, and the investment of new production capacity drove a month-on-month recovery in gross margin. The company achieved breakthroughs in Y-Al and fluorine coating technology.
The global layout aims to promote an increase in international market share. Downgraded to an increase in holdings rating.
Key points to support ratings
Fortune Precision's 2024Q1 revenue achieved steady month-on-month growth, and gross margin rebounded month-on-month. Futura Precision's 2023Q4 revenue was 676 million yuan, QoQ +20%, YoY +27%; gross profit margin 21.3%, QoQ-5.1pcts, YOY-10.2pcts; net profit after deducting non-return to mother of 49 million yuan, QoQ +316%, YoY -8%. Fuchuang Precision's 2024Q1 revenue was 701 million yuan, QoQ +4%, YoY +105%; gross profit margin 25.4%, QoQ +4.1pcts, YoY 3.8pcts; net profit after deducting non-return to mother of 54 million yuan, QoQ +10%, YoY +1385%. Considering the impact of the Spring Festival in the first quarter, Fuchuang Precision's 2024Q1 revenue still achieved month-on-month growth, which shows the resilience of the company's revenue. Fuchuang Precision's gross margin declined in 2023Q4, as labor costs and equipment depreciation expenses at the company's new plant increased. With the opening of production capacity in the new factory, the company's gross margin also rebounded in 2024Q1.
In 2023, Fortune's precision module products grew rapidly, and the mainland region became the main driving force for growth. In terms of products, Fortune Precision's 2023 process parts revenue was 457 million yuan, YoY +12%; structural parts revenue was 491 million yuan, YoY -2%; module product revenue was 925 million yuan, YoY +126%; gas pipeline revenue was 165 million yuan, YoY -22%. From a regional perspective, Fortune Precision's revenue in mainland China in 2023 was 1,436 million yuan, YoY +72%; revenue outside the mainland was 602 million yuan, YoY -13%. In 2023, the company's module product revenue grew rapidly, and along with the deepening of domestic replacement of semiconductor equipment, the company's demand from mainland China also grew rapidly.
Equipment parts technology continues to advance, and the production base has a radioactive layout. In 2023, Fortron Precision successfully developed Y-Al and fluorine-containing coatings. Y-Al series coatings have passed client verification, and fluorine-containing coatings have entered the customer verification stage. The company also successfully developed Al2O3 and Y2O3 nanofilm processes for ALD and CVD machines. The company is also promoting the layout of the Nantong factory, the Beijing factory, the Singapore subsidiary, and the US subsidiary to cope with changes in the international situation and promote an increase in international market share.
valuations
Fortune Precision's 2024/2025/2026 EPS is expected to be 1.29/1.82/2.32 yuan, respectively. As of the close of April 30, 2024, the company's total market value was 14.9 billion yuan, corresponding to 2024/2025/2026 PE 55.1/39.0/30.6 times, respectively. Considering the company's international layout and the increase in labor costs and equipment depreciation due to the construction of the new plant, we significantly lowered our expectations for the gross margin of the original company and lowered our net interest rate expectations at the same time. In response, we downgraded the company's rating and gave it an increase in holdings rating.
The main risks faced by ratings
The recovery in semiconductor demand fell short of expectations. Product development and verification progress fell short of expectations. Market competition worsened.
Product prices have declined.