3Q23 performance is slightly lower than we expected.
The company announced 1-3Q23 performance: 1-3Q company realized revenue of 731 million yuan, year-on-year +7.1%; 3Q single quarter income of 232 million yuan, year-on-year-14.3%; 1 -3Q parent net profit of 149 million yuan, year-on-year +2.1%, 3Q single quarter parent net profit of 47 million yuan, year-on-year-11.3%. 3Q23 performance was slightly lower than our expectations due to a large decline in the company's VCP business and a slowdown in the pace of composite copper foil capital expenditure.
Trend of development
The main business of VCP declined more in the first half of the year and stabilized in the second half of the year. Affected by the macro environment, the company's downstream PCB capital expenditure slowed down, we expect this year's VCP main business from 2Q23 began to show a year-on-year sharp decline trend, from 3Q23, VCP main business has achieved signs of stable recovery. Benefiting from the important breakthroughs made in the general hardware plating business and semiconductor ceramic plating field, we expect the company's main business product structure to be further optimized and its ability to withstand the downward cycle of the industry to be strengthened.
Composite copper foil technology route switching, affecting the pace of capital expenditure. Since the beginning of this year, the trend of composite copper foil industry has changed, and downstream material factories have generally switched from PET route to PP route. Due to the existence of PP composite copper foil adhesion problem, the industry threshold has increased, most of the material enterprises this year focused on overcoming the adhesion problem, and affected the pace of capital expenditure, only a few companies have achieved the overcome. Because of the above reasons, the company has signed fewer new orders in the field of composite copper foil electroplating since the beginning of this year. However, we believe that the core competitiveness of the company has not been affected and the competitive landscape remains stable. We expect that around the end of November this year, with the smooth completion of PP copper foil testing, industry capital expenditure is expected to restart before the end of the year, and the most pessimistic time may have passed.
Two-step method is the mainstream route, the company's water plating equipment is indispensable. According to our research and tracking, we believe that the two-step method of "magnetron sputtering + water plating" or the most economical and performance advantage of composite copper foil mass production. We believe that the mainstream material manufacturers are moving closer to the two-step method in the near future, and the industry's differences on technical routes are expected to dissipate and gradually move towards unification.
Profit forecast and valuation
Considering that the composite copper foil industry trend this year is lower than expected, but it may not affect our judgment on capital expenditure in 2024, we lowered our net profit for 2023 by 34.6% to 206 million yuan, maintaining the profit forecast for 2024 unchanged. The current share price corresponds to a P/E ratio of 53.4 times/21.7 times for 2023/2024. To maintain the outperform industry rating, considering the uncertainty of industry trends, we lowered our target price by 28.5% to 66.9 yuan, corresponding to 30.3 times P/E ratio in 2024, with 40% upside compared with the current share price.
Risk
Changes in technical routes exceeded expectations; industrialization of composite copper foils fell short of expectations;PCB boom declined beyond expectations.