Incident: In 2023, the company achieved operating revenue/net profit attributable to mother/ net profit deducted from mother of 7.12/1.74/150 million yuan, +7.5%/-7.6%/+0.2% year-on-year, respectively. Among them, 23Q4 achieved revenue/net profit attributable to mothers/net profit of 2.01/0.49/43 billion yuan in a single quarter, +15.3%/-13.7%/+32.6% year-on-year, and +2.1%/-5.1%/-6.1% month-on-month. 24Q1 achieved revenue/net profit attributable to mothers/ net profit deducted from non-mother of 2.02/0.52/0.46 billion yuan, +39.5%/+79.9%/+100.0% year-on-year, and +0.7%/+5.1%/+6.7% month-on-month.

After 23 years of steady operation, demand is picking up and growth is expected to accelerate. Facing a business environment where demand in the 23H1 global terminal market is weak and 23H2 downstream demand is recovering steadily, in 2023, sales of square inorganic powder were 71,000 tons, YOY +3.0%, sales of spherical inorganic powder were 26,000 tons, and YOY +8.4%. We expect the company's growth to accelerate in 2024. From the perspective of the industry and company: 1) Industry demand is picking up: EMC has shown a recovery trend in demand and is expected to continue to improve, and the growth of advanced packaging is expected to continue to drive in the medium to long term. CCL's boom has increased, and progress is accelerating at a high speed; 2) The industry pattern is good: years of accumulation have helped the company achieve a leading edge in the global supply chain and compete directly with Japanese companies; 3) Industrial chain scarcity: the company's high-end products, such as spherical silicon below TOP CUT20um and Lowα ball aluminum, have achieved batch supply in HBM and other fields, forming card position advantages on both the customer and product side, and supply priorities have increased dramatically. It is expected to become the most beneficiary target of the AI industry trend.

Focus on R&D, and the share of high-end products is expected to continue to increase. The company has always attached great importance to R&D innovation and product upgrade iteration. In 2023, the company's R&D expenses rate was 6.7%, an increase of 0.8 pct over the previous year. In March 2024, the company announced that it plans to invest 100 million yuan to build a research and development center for advanced functional powder materials for ICs, and plans to invest 129 million yuan to implement an ultra-fine spherical powder production line construction project with an annual output of 3,000 tons for advanced integrated circuits to further increase R&D and investment in high-end products. The company continues to focus on leading advanced technologies for downstream applications such as high-end chip (AI, 5G, HPC, etc.) packaging, heterogeneous integrated advanced packaging (Chiplet, HBM, etc.), next-generation high-frequency high-speed copper-clad plates (M7, M8, etc.), high thermal conductivity interface materials for new energy vehicles, advanced millimeter wave radar and photovoltaic cell adhesives, etc., and continues to launch various specifications of low-CUT point Lowα micron/sub-micron spherical silicon powder, spherical alumina powder, spherical alumina powder for high-frequency high-speed copper clad plates Micropowder, micron/submicron spherical with high thermal conductivity for new energy batteries Alumina powder. Strengthen research and development of functional powder materials such as high-performance spherical titanium dioxide and advanced nitride powders. The company is speeding up customer certification of new products and increasing certification from overseas customers, which is expected to drive the release of high value-added products.

Profit forecasting and investment advice: The company has advantages such as product sequence/technology/service, breaking overseas monopolies, and covering almost all core customers. Both spherical silicon and spherical aluminum for advanced packaging (such as HBM related) already have related supplies to lay the foundation for future emissions, and spherical aluminum for thermal conductivity is also expected to bring a second growth curve. Considering the recovery in terminal demand, we slightly raised 24-26 net profit to mother of 2.5, 350, and 4.6 billion yuan (the original 24-25 profit forecast was 250 million yuan and 310 million yuan), corresponding PE to 35.4, 24.9, and 18.9 times, maintaining the “buy” rating.

Risk warning: increased market competition, downstream demand falls short of expectations, production capacity investment progress falls short of expectations, new business development falls short of expectations, large fluctuations in raw materials and energy prices, risk of exchange rate changes