Event description

Fenghua Hi-Tech disclosed its first-half report that during the reporting period, the company realized operating income of 2.118 billion yuan, down 21.47% from the same period last year; realized net profit of 368 million yuan, down 27.21% from the same period last year; and realized net profit of 201 million yuan, down 58.10% from the same period last year.

Non-recurrent gains and losses are mainly 125 million yuan from the disposal of non-current assets and 26 million yuan from government subsidies.

Event comment

Since the third quarter of 2021, the shortage of chips has led to a decline in procurement demand for components, and the component industry has entered a de-inventory cycle.

With the easing of the chip supply problem, the demand side has declined again. In the first half of 2022, due to the global macroeconomic downturn, as well as war, epidemic, rising prices of raw materials and other factors, the market demand for traditional MLCC applications such as home appliances and communications continued to be weak. The demand for 5G applications, new energy vehicles, photovoltaic and other high-end applications remains relatively prosperous. In the first half of the year, sales of the company's top 10 key end customers increased by 7.39% compared with the same period last year, sales of automotive electronics customers increased by 28.52%, and sales of high-end products increased significantly over the same period last year. The proportion of high-end MLCC and chip resistor sales continued to rise from 30.26% and 28.37% in January to 40.80% and 43.43% in June respectively.

In the first half of the year, the company continued to invest in research and development, 17 new resistance and capacitance inductance products made technological breakthroughs, the first domestic launch of 1206 specification 100uf capacitor products, 01005 chip resistance technology reached the advanced level of international counterparts. Through supplier carding and salary policy reform, the direct production cost was reduced by more than 7000 million yuan in the first half of the year, the purchasing cost of raw and auxiliary materials was saved more than 2700 million yuan, and the labor cost was more than 3000 million yuan.

We believe that MLCC is essentially a "cycle growth" industry, and its long-term growth is reflected in the expansion of application terminals and the improvement of product performance. At present, MLCC is in a long period of demand for 5G + intelligent vehicles. For example, the average use of high-end 5G smartphones reaches 1000-1200. The improvement of global penetration of 5G mobile phones will lead to the continuous growth of MLCC demand. At the same time, the intelligent upgrade of cars requires a wide range of specification-level MLCC with high capacity, high pressure, high temperature resistance and high reliability in ADAS systems, power systems, in-vehicle infotainment and car body scenarios. According to Murata's estimate, L2 + vehicles use more than 10000 MLCC. In the first half of the year, the company raised 5 billion yuan through non-public offerings, effectively ensuring the promotion of future production expansion projects.

The company's Xianghe Industrial Park high-end MLCC and chip resistance expansion project capacity is gradually released, which will become the basis of the company's medium-and long-term high-speed growth. At present, it is in the downstream traditional off-season, and the demand for smartphones is suppressed by lack of cores. We expect the demand to pick up in the second half of the year, the purchasing power of end-customer components is expected to recover, and the pressure on the fundamentals of the company is expected to be reduced under the recovery of the industry. It is estimated that the return net profit of the company from 2022 to 2024 is 733 million, 984 million and 1.461 billion respectively, and the corresponding PE is 28.76,21.41,14.42 times respectively.

Risk hint

First, the peak season demand of consumer electronics in the third quarter is lower than expected; second, the progress of Xianghe Phase II and Phase III production expansion projects is lower than expected.