Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 4.845 billion yuan, an increase of 7.15%; realized net profit to mother of 707 million yuan, an increase of 6.93% year on year; realized deducted non-net profit of 656 million yuan, an increase of 2.89% year on year. In 2024, Q1 achieved operating income of 1,051 million yuan, down 11.12% year on year and 1.46% month on month; realized net profit of 137 million yuan, down 11.32% year on year and 14.18% month on month; realized deducted non-net profit of 129 million yuan, down 10.60% year on year and 0.46% month on month.

The 23-year performance achieved steady growth, and demand was weak, and Q1 performance was under pressure: the company's performance grew steadily in 2023, mainly due to the company's revenue growth of more than 30% in new energy and applications such as energy storage, electric vehicles, and charging piles. The company's gross margin in 2023 was 26.08%, -0.29pct year on year, mainly due to an increase in operating costs of electronic components; the company's net margin was 14.66%, +0.01pct year on year. The net profit margin was in the opposite direction of change in gross margin, mainly due to a sharp increase in other earnings. In terms of expenses, throughout 2023, the company's sales, management, R&D and financial expense ratios were 1.58%/3.20%/4.79%/-0.22%, respectively, with year-on-year changes of -0.15/-0.004/-0.05/+0.55pct, respectively. Among them, the financial expense ratio and absolute value both showed year-on-year increases in 2023, mainly due to a decrease in exchange earnings. The decline in the company's performance in Q1 in '24 was mainly due to a combination of factors such as low industry prosperity, insufficient demand, and price cuts. In terms of profitability, the company's gross margin in Q1 in '24 was 23.58%, -2.21 pcts year on year, -2.31 pcts month on month; net margin was 13.18%, +0.12 pcts year on year, -1.98 pcts month on month. The company's annual report shows that inventory removal in the wind and solar storage sector is gradually coming to an end, and demand for film capacitors in these applications is expected to increase by 20%. At the same time, industry sentiment is gradually picking up, market demand has also improved, and there is a high degree of certainty that the company's performance will grow for the full year of '24.

Demand for wind and solar storage is picking up, and the supply of film capacitors to customers in many fields: with the end of inventory removal and the steady development of the industry, demand for film capacitors on the wind and solar storage application side is gradually picking up. In April 2024, the company said that in Q1 2024, the company's order situation for film capacitors in the field of wind and solar storage improved slightly from month to month; the investment progress of the “High Voltage Large Capacity Film Capacitor Production Expansion” project issued in 2016 exceeded 70%, and achieved a relatively rapid increase in revenue and profit. By the end of 2023, the company's film capacitors had entered the mass application stage in the fields of consumer electronics and industrial equipment, began batch delivery in the fields of new energy, military industry, etc., and received orders for 2 years in the field of electric vehicles. In summary, the company's film capacitor business is expected to usher in rapid growth. The company expects a sharp increase of more than 40% in film capacitor revenue in 2024, and stated that it will improve and expand production according to market demand and the company's actual production capacity.

AI servers continue to prosper, and we expect the gradual release of MLPC products: the company's MLPCs, solid state and solid-liquid hybrid aluminum electrolytic capacitors are one of the key components of AI-related servers. According to Verified MarketResearch forecasts, the global AI server market is expected to grow to $166.6 billion in 2030, and the global AI server market CAGR is approximately 17.45% in 2024-2030. With the rapid development of Al technology, AI's demand for hardware has also increased dramatically, and the company's MLPC products have broad market application prospects. In February 2024, the company stated on the investor interactive question and answer platform that the relevant user testing and certification of the company's MLPC products is being carried out step by step, and actual application is expected in the second half of 2024. Currently, the company's MLPC capacitor production capacity utilization rate is still not high, and production is expected to expand in the future. After years of R&D investment, the company has achieved major breakthroughs in the performance of MLPC capacitors and solid-liquid hybrid aluminum electrolytic capacitors. Benefiting from the rapid growth of AI, these products are expected to become important growth poles for aluminum electrolytic capacitors in the future.

Lowering profit forecasts and maintaining a “buy” rating: The company is mainly engaged in R&D, manufacturing and sales of three types of capacitors: aluminum electrolytic capacitors, film capacitors, and supercapacitors. The company's products are widely used in industrial automation, robotics, consumer electronics, rail transit, 5G communication equipment, new energy, smart grids, military and other fields. In 2023, the company's film capacitors achieved batch applications in many fields; the company's MLPC capacitors also made major breakthroughs in technology and materials. Benefiting from the rapid growth in demand for AI servers and their subsequent application in data centers, the amount of AI hardware required has increased dramatically, and the company's MLPC business is also expected to experience rapid growth. We are optimistic about the company's future performance development. Considering that the PV market downstream of the company's film capacitors is still under some pressure, we lowered our profit forecast. We estimate that the company's net profit for 2024-2026 will be 832 million yuan, 1,033 million yuan, and 1.65 billion yuan respectively; EPS will be 0.98, 1.22, and 1.49 yuan/share, respectively; PE will be 15X, 12X, and 10X, respectively.

Risk warning: risk of raw material price fluctuations, technology research and development risk, increased risk of industry competition, impact of exchange rate fluctuations.