Key points of investment:

2024 interim report performance forecast: Sanhuan Group's 2024 interim net profit is about 95,050.12 to 1096.7322 million yuan, up about 30% ~ 50% year on year; after deducting non-net profit 853.9857-967.8505 million yuan, up 50%-70% year on year. Mainly due to the continuous improvement in demand in consumer electronics, optical communications and other industries, demand for the company's main products is growing; at the same time, the market recognition of the company's MLCC products continues to increase, and the downstream application fields are becoming more and more extensive, with a significant increase over the previous year. 24Q2 results surpassed Shenwan's expectations.

The predicted median value of net profit attributable to mother and net profit not attributable to mother for 24Q2 accelerated month-on-month compared to 24Q1. Net profit for the 24Q2 quarter was 0.518-0.664 billion yuan, up 26%-62% year on year; net profit after deducting non-return to mother was 0.476-0.59 billion yuan, up 45%-79% year on year. 2024Q1's revenue was 1.564 billion yuan, up 31.49% year on year; net profit to mother was 0.433 billion yuan, +35.31% year over year; after deducting non-net profit of 0.378 billion yuan, up 57.40% year on year.

Deeply involved in the field of electronic components and materials for more than 50 years, it ranks among the highest in the world in production and sales of ceramic inserts for optical communications, alumina ceramic substrates for chip resistors, and semiconductor ceramic packaging bases. The future development plan of the Sanhuan Group: 1. Complete the advanced materials and electronic component products of the original company; 2. Complete MLCC products in the past three years; 3. Develop new energy products (that is, solid oxide fuel cells) in the future.

Sanhuan Group set up research institutes in Shenzhen, Suzhou and Chengdu. The product film thickness exceeded 1 micron, accelerating the expansion of MLCC production. In 2019, the company decided to vigorously promote the development and production of MLCC products, invest 3.75 billion in high-capacity MLCC production expansion projects, and add 300 billion MLCC per year (that is, 25 billion per month), reaching an estimated annual revenue of 2.25 billion yuan after delivery.

The company has mastered core technologies such as dry pressure, injection, casting, overprinting and molding technology, atmosphere protection, high-temperature co-firing technology, ceramic metallization, various forms of precision grinding technology and special equipment, and precision mold design and manufacturing technology for compact and high-precision products, and has the capacity to mass-produce MLCCs in various categories of general, medium and large sizes, medium and high pressure, and special products. The Sanhuan Ultra High Capacity MLCC won the “Best Product Award” at the 28th Guangzhou International Lighting Exhibition and won the “11th China Electronic Information Fair Gold Award” at the 101st China Electronics Fair. In 2023, Sanhuan achieved a technological breakthrough in dielectric layer thickness from 5 microns to 1 micron. The product covers full-size specifications from 0201 to 2220, which can meet most market applications, and the company's MLCC sales increased significantly in 2023.

In January 2023, the installed capacity of the three-ring solid oxide fuel cell system reached 210 kW, and the demonstration application projects passed inspection one after another, becoming an important milestone in the development of SOFC technology applications in China. Take the lead in undertaking the “Key Technology Application Technology for 100 Kilowatt Solid Oxide Fuel Cell Cogeneration Systems” project of the National Key Research and Development Program “Hydrogen Energy Technology”.

Raise the profit forecast and maintain the “gain” rating. Raise the 2024/25 net profit forecast from 2/2.6 billion yuan to 2.2/2.6 billion yuan, add the 2026 forecast of 2.9 billion yuan, and maintain the 2024/25 PE 30/25X rating.

Risk warning: Demand for communications products falls short of expectations, MLCC price competition, and automotive MLCC and SOFC expansion falls short of expectations.