The diversified layout highlights the company's resilience. The operation was steady in 2023, and the 24Q1 performance improved significantly.

In 2023, the company achieved operating income of 4.738 billion yuan, +11.2% year-on-year; realized net profit of 579 million yuan, +10.5% year-on-year. The gross sales margin for the whole year was 31.33%, and the net profit margin was 12.67%, which remained stable. The annual R&D investment was 190 million yuan, +48.8% over the same period last year, and the R&D expense ratio increased to 4.02%. By business, the company's growth in 2023 was mainly driven by the doubling of LNG insulation composites, which achieved revenue of 865 million yuan, or +114.5%; the company's main electronic materials, photoresists and supporting reagents, and semiconductor chemical materials (mainly precursors) earned 1,304 billion yuan and 1,138 billion yuan respectively, +3.6% and -0.5% year-on-year, respectively. Against the backdrop of weak downstream demand and low customer utilization, the company achieved steady growth in performance through diversified strategic layout.

2024Q1, the company's revenue in a single quarter was 1,618 million yuan, +51.1% year over month, and +35.3% month on month; net profit to mother was 246 million yuan, +42.2% year over year, and +148.7% month on month. Since 2024, the volume and price of the panel industry have risen sharply, compounded by the fulfillment of LNG orders, and 24Q1's performance has increased significantly.

The precursor business benefited from the recovery of storage and the expansion of HBM production, and domestic independent production capacity began to climb.

Precursors are the core materials of the semiconductor film deposition process. The company's acquisition of Korea's UpChemical entered this circuit and has now basically achieved full coverage of large 12-inch customers. The subsidiary Korea Xianke had revenue of 1,231 billion yuan in 2023, +4.6% over the same period last year. In terms of domestic production capacity, Jiangsu Xianke's precursor project is progressing smoothly. Stable shipments of silicon precursors have been achieved, and High-K precursor and metal precursor products have also been sent for verification. The commissioning of the Xianke plant will help reduce production costs and shorten delivery times to domestic customers while achieving full autonomy and control of domestic precursor materials. In terms of downstream demand, the utilization rate of storage capacity rebounded significantly in 2024. AI is driving HBM demand. According to TrendForce's forecast, HBM demand will grow by nearly 200% in 2024, and is expected to double again in 2025, and the three major storage original manufacturers are expanding production one after another. The selection of storage performance has led to an increase in the amount and variety of precursors used, and the added value of products has increased, and the company is expected to benefit as the world's leading precursor company.

The photoresist product line is improving, and other electronic materials are progressing step by step.

In terms of photoresists, the company's photoresist products successfully developed OC&PS photoresists in 2023 on the basis of existing RGB color adhesives, TFT adhesives, CNT antistatic materials and photoresist supporting reagents, further increasing the range of panel photoresists. Xianke's factory photoresist project was successfully verified by the client, and 24H1 is expected to be put into operation one after another. The company is also actively developing photoresists for semiconductors, and photoresists for advanced packaging have entered production line testing. Furthermore, the company acquired LG Chemical in the early stages and undertook its strong resin synthesis capabilities. Currently, the company is strengthening independent research and development of upstream photoresist resins, and the product gross margin is expected to increase.

In terms of silicon powder, the company's silicon powder revenue in 2023 was 188 million yuan, -14.5% year-on-year. New products CCL and spherical alumina have begun to be supplied stably to customers. In terms of production capacity, the “Next-Generation Large-scale Integrated Circuit Packaging Special Material Localization Project” raised by the company has a total production capacity of 10,000 tons, and another 39,000 tons of silicon powder production capacity is under construction. High-end silicon powder is expected to benefit from the rapid growth of advanced packaging. In terms of electronic specialty gas, the company's electronic specialty gas revenue in 2023 was 439 million yuan, -11.5%. The subsidiary Chengdu Kemet focused on fluorine chemical high value-added products. With the company's strong customer matrix, electronic specialty gas was introduced into the supply system of more semiconductor and panel customers. In terms of wet electronic chemicals, the company acquired SKC-ENF to enter this field in 2023. The main products include developer, diluent, etching solution, etc., which match the use of photoresists. The industrial chain has significant synergy advantages and is expected to become a new growth point for the company.

There are plenty of orders for LNG sheets, improving the “key auxiliary materials+insulation board+engineering installation” layout.

The company is the first domestic LNG insulation board manufacturer certified by the French GTT and Classification Society. It has complete intellectual property rights and advanced production processes and intelligent production lines for LNG sheets. The second LNG insulation board factory has begun large-scale production, and there are sufficient orders in hand. At the end of 2023, the company's contract liabilities increased by 113.2% to 923 million yuan, mainly due to an increase in advance receipts from LNG material customers. In terms of key auxiliary materials, RSB and FSB secondary shielding films are the core materials of LNG enclosure systems. They have been monopolized by Korean and French companies for a long time. The company has successfully developed and tested production, and is currently in the GTT certification process. Based on the plate business, the company extended to large-scale liquefied natural gas transportation and storage engineering installation services, and signed LNG construction contracts with large shipyards such as Dalian Shipbuilding, China Merchants Heavy Industries, and Yangzijiang Shipbuilding, forming a complete business model of “key auxiliary materials+insulation board+engineering installation”, and continued to expand the performance growth point of the LNG business.

Investment advice

The company is a pioneering force in the localization of semiconductor materials in China, and is expected to fully benefit from the recovery of the electronics industry and the continuous promotion of domestic autonomy and control. As mass production at the company's Xianke plant climbs and LNG orders continue to be delivered, the company will usher in a period of rapid growth in performance. The company's 2024-2026 revenue is expected to be 68.02/8.588/10.671 billion yuan, up 43.6%/26.2%/24.3% year on year; net profit to mother is 9.62/12.85/1,702 billion yuan, up 66.1%/33.5% year on year. The PE corresponding to the previous closing price (6/11) was 30, 23, and 17 times, respectively, maintaining the company's “buy” rating.

Risk warning

There is a risk that project verification and production capacity climbing progress falls short of expectations, downstream recovery falls short of expectations, industry competition intensifies, and raw material prices fluctuate.