FY22 performance is in line with market expectations
The company announced its 2022 results: revenue of 2,158 million yuan, YoY +7.89%; net profit of 852 million yuan, YoY +4.37%; after deducting non-net profit of 755 million yuan, YoY +3.12%. The performance is in line with market expectations.
Development trends
Operations picked up month-on-month in 4Q22, and the non-tantalum business continued to grow rapidly. 1) Under the influence of factors such as the epidemic in the second half of 2022 and adjustments in the pace of industrial chain orders, the company's 3Q22 and 4Q22 quarterly revenue growth rates were -5.6%/2.6%, respectively, and profit growth rates were -11.6%/7.2%, respectively. The company's revenue and profit growth in the fourth quarter increased month-on-month, and overall operations remained steady. 2) By product, the annual component business achieved revenue of 1.77 billion yuan, an increase of 2.9% over the previous year, accounting for 86% of revenue, with a gross profit margin of 68.5%, a slight decrease of 1.6ppt over the previous year; module and other business revenue was 3.9 billion yuan, an increase of 37.8% over the previous year, and gross margin decreased 2.2 ppt to 58.3% year on year. 3) Among the major subsidiaries, Hunan Guantao (ceramic capacitors), Honda Magnetoelectric (inductors), and Hunan Hongwei (hybrid integrated circuits) had revenue and net profit growth rates of 13%/19%, 24%/17%, 57%/28% respectively. The total revenue from the non-tantalum business reached 1.04 billion yuan, YoY +26%, which became a new driving force for the company's growth.
The product structure affects gross profit levels, and investment in new product research and development continues to be increased. 1) The company's gross profit margin in 2022 was 65.5%, -2.2 ppt year on year, mainly due to an increase in the share of non-tantalum business; R&D expenses rate increased 2.2 ppt to 8.4% year on year; net interest rate decreased 1.3 ppt to 39.5% year on year. 2) The company continues to launch new products. A total of 36 scientific research projects were carried out during the year, launching new products such as aerospace-grade MLCCs, internally fused polymer chip tantalum capacitors, etc. Projects such as DC/DC converters, hollow-coil RF inductors, high-performance ECL circuits and buffers, and metallized organic film capacitors were certified by a third party. The company has set up a flexible R&D and technology platform, using expert resources and production technology platforms for various product lines to provide a foundation for new product development.
Inventories increased sharply year on year, and the group development strategy continued to be strengthened. 1) The company's inventory at the end of 2022 increased 35.3% year-on-year to 1.12 billion yuan, mainly due to the expansion of the size of various subsidiaries, the increase in material procurement volume, and the increase in inventory products in the general sector. 2) Net cash flow from operating activities for the year was 50.0 million yuan, which was basically the same as the previous year. 3) The company continues to promote the construction of platform-based enterprises. In 2022, it passed the Zhuzhou Core Porcelain Group of HTC; its subsidiaries, HTC Dentsu, HTC Inertia, and Honda Hengxin, were certified as high-tech enterprises.
We believe that the strategy of group development has laid a solid foundation for the company's future development.
Profit forecasting and valuation
Due to a certain delay in the pace of downstream demand, we lowered our net profit in 2023 by 25% to 1.01 billion yuan, and introduced net profit of 2024 by 1.19 billion yuan. The current stock price corresponds to 18.4x/15.5x P/E in 2023/2024, maintaining an outperforming industry rating, and lowering the target price by 18% to 60.87 yuan, corresponding to 25.0x/21.1x P/E in 2023/2024. There is 36% upward room from the current stock price.
risks
Orders and product delivery fell short of expectations.