Core ideas

The company is a major domestic supplier of specialty MLCC and a leading domestic enterprise for CMC new materials. It has built manufacturing bases in Quanzhou, Guangzhou and Chengdu around the three strategic sectors of “components, new materials, and international trade”. The company's special components business declined due to short-term fluctuations in demand. Localization and intelligent upgrading of electronic components combined with booming development in the civilian sector, the long-term trend remained unchanged. The subsidiary won the bid for the third-generation continuous SiC fiber project for ceramic-based composites, pre-research and batch production of next-generation ceramic-based composites. The penetration rate in the aerospace sector is expected to reach an inflection point, creating the company's second growth curve.

occurrences

China Textile Research Institute Co., Ltd. directly procures third-generation silicon carbide fibers and announces that third-generation continuous SiC fibers are high-performance strategic new materials resistant to high temperatures, oxidation, ablation, and radiation in the fields of aviation, aerospace, and nuclear power. Fujian Jianxin Materials Co., Ltd. is the only unit in China that has successfully industrialized third-generation continuous SiC fibers. At the same time, the only unit that undertakes the engineering development of third-generation continuous SiC fibers by the National Defense Bureau of Science, Technology, and Industry has successfully established a tonnage production line. Its batch products and production capacity have passed the inspection and review by the Bureau of Science, Technology and Industry and the Aviation Industry Group, and the performance has reached the international advanced level. According to the “China Textile Institute Procurement Management Implementation Rules (Trial)”, Chapter 3, Section 12 (4) (7), “A procurement method that can achieve relevant policy goals or procurement goals only if procurement is carried out from a specific supplier.” Since this material is only procured from specific suppliers, it is proposed to directly purchase this third-generation silicon carbide fiber from Fujianji New Materials Co., Ltd.

Brief review

1. It can be expected that the subsidiary will win the bid. Ceramic-based composites are expected to continue to be implemented. Third-generation continuous SiC fiber is a new high-performance strategic material with high temperature resistance, oxidation resistance, ablation resistance, and radiation resistance in the aviation, aerospace, and nuclear power fields. The subsidiary Riya New Materials is the only unit in China that has successfully industrialized third-generation continuous SiC fibers.

At the same time, the only unit that undertakes the engineering development of third-generation continuous SiC fibers by the National Defense Bureau of Science, Technology, and Industry has successfully established a tonnage production line. Its batch products and production capacity have passed the inspection and review by the Science, Technology and Industry Administration and the Aviation Industry Group, and the performance has reached the international advanced level. Subsidiary projects can be expected to win bids, and the strategic new materials industry is expected to continue to release performance.

2. Short-term performance fluctuated due to multiple external influences, and future growth momentum for industry recovery was sufficient due to the overall slowdown in market demand. In particular, the sales scale of the trade sector business declined significantly year-on-year, leading to a year-on-year decline in operating income. In the first three quarters of 2024, the company achieved operating income of 2.15 billion yuan (-20.7%), achieved net profit of 0.23 billion yuan (-22.6%), and net profit of non-return to mother of 0.21 billion yuan (-23.9%).

2024Q3 achieved operating income of 0.72 billion yuan (-36.2% YoY, -6.5% month-on-month), net profit attributable to mother of 0.062 billion yuan (YoY +60.8%, 31.59% month-on-month), and net profit of 0.057 billion yuan (YoY +59.19%, YoY +-33.8%). The company's special components business declined due to short-term demand fluctuations. As demand gradually recovers, the industry is expected to recover steadily.

3. Localization and intelligent upgrading of electronic components, combined with booming development in the civilian sector. The long-term trend has not changed. In recent years, the country has continued to increase its support for the electronic components industry, promote breakthroughs and innovations in core technologies, and accelerate domestic substitution, providing a favorable development environment for the electronic components industry. With the advent of the intelligent era and the development of 5G and Internet of Things technology, the technical requirements for electronic devices are constantly improving. Higher requirements are being placed on the technical level of electronic components, and the demand for electronic components is growing at the same time. Electronic components are a technology-intensive industry. In terms of the competitive landscape, the middle and high-end markets are concentrated, and leading companies occupy most of the market share with their technological advantages and scale effects. Its application in the field of high reliability also has high technical barriers. It is necessary to obtain relevant qualifications before entering the supporting market. The verification of the supply system takes a long time, and the process is relatively complicated, so the industry concentration is relatively high. Although the electronic components industry experienced an overall weakening of downstream demand in 2023, market demand has gradually stabilized over time. Thanks to technological innovation, policy support, the promotion of emerging technologies and increased localization rates, and booming development in the fields of communications, new energy vehicles, smart homes, etc., the electronic components industry will still usher in a broad market space.

4. Ceramic-based composites, the penetration rate of the aerospace sector has increased, creating a second growth curve. Ceramic-based composites (CMC) are a key area of the company's layout. Currently, it is in a critical period from pre-research to mass production. With the gradual maturity of the process and product release, the company's second growth curve is expected to open. As the basic support for China's next-generation weapons and equipment, the development of new materials mostly depends on years of pre-technical research by research institutes. Following the development of new models, they are highly exclusive and have large technical barriers. The company's special high-performance new materials have outstanding advantages such as high temperature resistance, low density, and excellent high temperature oxidation resistance. They have great application prospects in aerospace and nuclear energy fields, and the market space is broad.

The subsidiary Riya New Materials CASAS-300 Special Ceramic Materials has mastered a series of proprietary technologies for the industrialization of “high-performance special ceramic materials” through exclusive technical licensing and independent research and development. The product range covers a comprehensive range. It is one of the few domestic enterprises with large-scale production capacity for ceramic materials. The company's product performance and production capacity already have a stable supply capacity. RIA New Materials focuses on deepening close communication with downstream units, speeding up the development of downstream applications; and actively exploring new production models and management strategies to improve operational efficiency based on the urgent needs of capacity optimization and cost reduction and efficiency.

5. The diversification strategy of international trade continues to stabilize the global original cooperative trade sector supply chain management system, and has established long-term and stable strategic cooperative relationships with many well-known manufacturers at home and abroad. It also relies on companies such as Hong Kong and Singapore to continue to introduce high-quality product lines to expand the Southeast Asian market and enhance market share and brand influence. Downstream covers a wide range of fields, mainly in communication products, digital products, automotive electronics, security, industrial electronics, etc. Affected by the external environment, the international trade business market is saturated and competitors are increasing. The company actively adopts diversified strategies, improves risk management mechanisms, introduces innovative product lines, expands model cooperation and new brand market development to effectively maintain and gradually increase sales. At the same time, the company provides personalized solutions by strengthening pre-sales, in-sales and after-sales services to gradually improve customer satisfaction and loyalty.

6. Profit forecast and investment rating: Special components recover at the bottom, ceramic-based composites create the second growth curve. The company is a major domestic supplier of specialty MLCC and a leading domestic enterprise in CMC new materials. It has built manufacturing bases in Quanzhou, Guangzhou and Chengdu, and operation centers in Shanghai, Beijing and Shenzhen around the three strategic sectors of “components, new materials, and international trade”. The company's special components business declined due to short-term fluctuations in demand. Localization and intelligent upgrading of electronic components combined with booming development in the civilian sector, the long-term trend remained unchanged. Pre-research and batch production of a new generation of ceramic-based composites is expected to reach an inflection point, creating the company's second growth curve. We are optimistic about the company's future prospects. The company's net profit from 2024 to 2026 is expected to be 324, 3.91, and 508 million yuan, respectively, with year-on-year increases of 1.64%, 20.97%, and 29.66%, respectively. Corresponding PE from 24 to 26 will be 45.25, 37.41, and 28.85 times, respectively, maintaining the buying rating.

risk analysis

1. R&D results fall short of expectations: The company always insists on R&D investment. If R&D results fall short of expectations, it will significantly affect future market expansion and product upgrading, thereby affecting performance release.

2. Market competition intensifies: With the further advancement of military and civilian integration, the threshold for the military industry is gradually lowered, the company's traditional areas of advantage may be penetrated, and competition in emerging fields will become more intense, thus affecting the company's revenue and profitability.

3. Downstream orders fall short of expectations: The company's main business revenue mainly comes from the production and sales business of capacitors. As basic electronic components, capacitors are widely used in civil fields such as consumer electronics, industrial control equipment, medical electronic equipment, security, etc., as well as in aerospace, weapons and equipment, etc., and the scale and changes in the capacitor market demand have a certain correlation with the market size and changes in downstream industries.