The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 2.625 billion yuan, a year-on-year increase of 41.77%, and net profit to mother of 0.287 billion yuan, an increase of 48.51% year-on-year. After deducting non-return net profit of 0.262 billion yuan, a year-on-year increase of 87.32%. In the third quarter, the company's revenue also increased 52.48% to 0.998 billion yuan, and net profit to mother also increased 213.13% to 0.126 billion yuan. We are optimistic about the company's layout and development in key fields such as ultra-high purity targets and components, and maintain an increase in holdings rating.

Key points to support ratings

2024Q3's revenue performance maintained high year-on-year and month-on-month growth. The company's revenue for the first three quarters of 2024 was 2.625 billion yuan, up 41.77% year on year; net profit to mother was 0.287 billion yuan, up 48.51% year on year. The company achieved revenue of 0.998 billion yuan in a single quarter, up 52.48% year on year and 16.69% month on month; realized net profit to mother of 0.126 billion yuan, up 213.13% year on year and 23.85% month on month. With the development of the global semiconductor industry and the expansion of the company's target materials and precision parts production lines, the company's revenue has continued to increase quarterly since 2023Q2. 2024Q3 revenue and net profit to mother have maintained a high growth rate year-on-year and month-on-month.

Gross margin increased in the first three quarters, and R&D investment continued to grow. The company's gross margin for the first three quarters was 29.96%, up 0.76pct year on year. Among them, Q3 gross margin for the single quarter was 28.26%, a year-on-year decrease of 2.18pct, and a year-on-year decrease of 1.86pct.

Revenue growth led to an increase in cost investment efficiency. In the first three quarters of 2024, the company's sales/management/R&D/finance expense ratios were 2.97%/6.40%/6.29%/0.92%, respectively, -0.18pct/-2.36pct/+0.03pct/+2.43pct, respectively. Among them, the R&D expense ratio remained stable, and the increase in the financial expense ratio was mainly due to an increase in the size of the company's debt.

The company actively lays out ultra-high purity targets and key materials for third-generation semiconductors. In terms of target material business, the company has become a high-purity sputtering target supplier for well-known domestic and foreign manufacturers such as SMIC, TSMC, SK Hynix, BOE, etc., and is actively constructing fund-raising projects “ultra-high purity metal sputtering target project with an annual output of 0.052 million ultra-high purity metal sputtering targets for ultra-large-scale integrated circuits” and the “ultra-high purity metal sputtering target project with an annual output of 0.018 million for integrated electricity”.

Meanwhile, the establishment of a Korean subsidiary in 2023 and plans to build a new semiconductor target production plant in South Korea will help enhance the company's international competitiveness and supply chain stability. In terms of the precision parts business, as the product line continues to expand and a large number of new products advance from the trial stage to mass production, it is expected that precision parts will continue to be released. In terms of third-generation semiconductors, the holding subsidiary Ningbo Jiangfeng Tongxin has now completed the first domestic third-generation semiconductor power device module core material manufacturing production line with the world's advanced level and autonomous design. High-end copper-clad ceramic substrates have received initial market recognition; the holding subsidiary Jingfeng Xinchi has comprehensively laid out the silicon carbide epitaxial field, and silicon carbide epitaxial sheet products have been recognized by many customers. The company's diversified product system with ultra-high purity metal sputtering targets as the core, and the joint development of precision components and third-generation semiconductor materials is expected to continue to add momentum to the company's revenue and performance growth.

valuations

Considering the growth potential of the company's target materials and precision parts business under the wave of autonomy and control, the profit forecast was raised. EPS is expected to be 1.39 yuan, 1.78 yuan, and 2.43 yuan respectively in 2024-2026, and the corresponding PE is 53.6 times, 41.9 times, and 30.6 times, respectively. I am optimistic about the accelerated release of the company's ultra-high purity targets and precision components, and maintain an increase in holdings rating.

The main risks faced by ratings

Increased competition led to a decline in gross margin; the recovery in downstream demand fell short of expectations; and the commissioning of new projects fell short of expectations.