Company Profile

Zhejiang Jiemei Electronic and Technology Co., Ltd. (the company) is a China-based company principally engaged in the research, development, manufacture and sales of thin carrier tape for electronic components.

The company's main products include paper carrier bands, sellotapes and plastic carrier bands. Its products are mainly applied in the fields of integrated circuits, electronic chip component and other electronic information products.

The company distributes its products within the domestic market and to overseas market.(Source:Reuters)

Event

Zhejiang Jiemei Electronic and Technology Co., Ltd. ("Jiemei"/the company) announced its third-quarter financial results of 2023.

In the first three quarters of 2023, the company reported revenue/ net income attributable to shareholders at CNY 1.127 billion/ CNY 172 million, a year-on-year increase of 13.51%/ 15.14%, with Q3 seeing CNY 414 million /CNY 72 million, 47.62%/ 79.38% higher than it was a year ago.

Comments

Thanks to the recovery in demand, Jiemei's revenue continued to grow.

Its revenue rose by 13.51% in the first three quarters, by 47.62% in Q3 from a year ago and by 2.29% from a quarter earlier, mainly due to the demand recovery in downstream industries such as consumer electronics, gradual sales volume rises in industries including new energy, intelligent manufacture and commercial use of 5G technology, and to the gradual rally in orders.

As the terminal demand continued to improve, we hold that the company's operation will also continue to improve.

Lower raw material costs and lifted capacity utilization rates boosted its profitability.

The gross margin in the first three quarters of 2023 stood at 35.77%, up 5.54 percentage points from a year ago, and the reading was 40.2% in Q3 alone, up 14.95pps from a year ago.

We attributed the better gross margin to 1) elevated capacity utilization rates from a quarter earlier; 2) lower prices of wood pulp; 3) rallies in gross margin of membrane materials.

The selling, administrative, and R&D expense rates in the first three quarters of 2023 inched down by 0.82pps, 0.4pps and 0.67pps from a year ago, respectively, with Q3 alone seeing 1.1pps, 2.68pps and 0.51pps less than a year prior.

It reported its net operating cash flow at CNY 203 million in the first nine months, excellent operating quality.

The increase in the industry prosperity expanded the headroom of release film.

Looking forward, passive components have completed the destocking at the year turn, and thanks to the relatively better competitive landscape, they will show more resilience when re-stocking.

The company continued to maintain good quality and high market share in paper carrier bands, its main business, and continued to improve the output and sales volume of products with high added value.

Meanwhile, the additional capacity of supportive packaging tapes further boosted its overall production capabilities in packaging tapes.

More sales volume of high-end products and breakthroughs in sealing and testing customers led to a good business momentum.

The company has started the second phase of its BOPET membrane project and at the same time actively rolls out business in the second phase of CPP cast film.

Currently, MLCC, one of main downstream products of release film is accelerating the progress of domestication, and the company is also expanding its production capacity, leaving huge growth potential.

Earnings forecast and investment recommendation

We revise our earlier earnings forecasts and estimate its net income attributable to shareholders at CNY 262 million in 2023, CNY 448 million in 2024, and CNY 571 million in 2025, corresponding the PE ratio to 42.9x, 25.1x, and 19.7x, based on the closing price on October 23, 2023. Maintain "Outperform".

Potential risks

macroeconomic volatility; price hikes of raw materials; swings of US dollar exchange