Performance summary: In 2022, the company achieved operating income of 970 million yuan (+23.2%), achieved net profit of 151 million yuan (+50.1%), corresponding basic EPS was 0.5 yuan, and net profit of returned to the mother after deduction was 145 million yuan (+46.2%).

2023Q1 revenue was 300 million yuan (+64% year-on-year, +24% month-on-month), net profit of the mother was 036 million yuan (+18.2% year-on-year, +53.8% month-on-month), and the EPS for the single quarter was 0.12 yuan; the overall performance of zirconium products in 2022 was good. Product structure upgrades: 2022 benefited from rising downstream sentiment such as domestic photovoltaic glass, nuclear power, etc., and the price of fused zirconia products continued to rise. The price of fused zirconia products rose at the same time. The average annual price of zirconium 71,000 yuan/ton (+30.7%) and 213,000 yuan/ton (+25.8%). However, since June, as downstream demand continues to weaken, the price of zircon sand has been declining. The corresponding price of zirconia has dropped from a high level of nearly 80,000 yuan/ton to the latest about 60,000 yuan/ton. Meanwhile, in the downstream sector of fused zirconia, 1) Due to the influence of policies such as dual control of energy consumption, the sponge zirconium market began to gradually pick up after 3 months. The company achieved revenue of 77 million yuan of spongy zirconium in the first half of the year. In the second half of the year, with the start of downstream chemical projects and the number of orders recovered, the market price of spongy zirconium began to rise. Basically, it remained at a high level of 220,000 yuan/ton, and revenue increased sharply to 210 million yuan; 2) In the chemical field, the subsidiary Zirconia, Liaoning Huaxiang has invested in the construction of a 20,000 ton zirconium oxide project to complete the production process testing product stage. Preliminary entry into the market to connect and Accepted by customers, it is planned to be fully put into operation in 2023; the zirconium product structure continues to be extended and optimized: the company's zirconium products mainly cover fused zirconia, spongy zirconium, zirconium oxychloride, etc., and a collaborative advantage in the industrial chain has been formed. Based on the above industry data analysis, the year-on-year increase in revenue in 2022 was mainly due to the rise in the unit price of fused zirconia and the increase in sales of sponge zirconium products. The overall sales volume of zirconium products did not change much (+2% compared to the same period), and the unit price reached 43,000 yuan/ton (+29%). Judging from product profitability, the gross margin of zirconium series products reached 37.3% (+4.8pcts) throughout the year, which is the best level in history; in terms of casting modified materials, the downstream automotive industry was affected by short demand for the main components There has been a decline, although due to the price of raw materials Affected by the rise, product prices rose, but overall gross margin fell sharply to 11.9% (-10pcts). During the year, due to the decline in zirconium product prices that began in the second half of the year, the company's overall Q4 gross margin fell by 10pcts to 28.3%. According to financial data, the company's financial expense ratio was 0.5% (-1.12pcts). The main reason was that there was interest on convertible bonds in 2021, and interest expenses were drastically reduced in 2022; as investment in R&D projects increased, the R&D cost rate increased by 0.7 pcts to 4.85%; inventory increased 75% year-on-year, mainly due to strong demand for zirconium sponge and the commissioning of some zirconium oxychloride production lines, and increased inventory of products; profitability of 2023Q1 products picked up: in the first quarter of 2023, as downstream demand recovered, the price of drilling products recovered A slight rebound, combined with an increase in product sales, led the company's Q1 revenue to increase 24% month-on-month, and gross margin increased slightly by 2.3 pcts to 30.6% month-on-month. Looking ahead to 2023, as the first phase of the Liaoning Huaxiang 20,000 ton project (100,000 tons in total) is officially put into operation, the contribution of oxychloride drill products to the company's performance is noteworthy. As an intermediate for various miscompound products, it is an extremely important fine chemical raw material. It represents the company that will also enter another new field in the drilling industry and further expand the industrial chain; entering magnesium-aluminum alloy materials to embark on a new lightweight journey of lightweighting: the company cooperated with Ningde Shidai, Wanshun Group and other enterprises to invest in the construction of a new lightweight material, Ningde Wenda Aluminum Technology Co., Ltd. (Sanxiang), which holds 35% of the shares of the new lightweight material, magnesium-aluminum alloy project The first phase of the project was completed It will be put into operation in early 2022. As the lightest metal structural material, magnesium alloy has broad application prospects in automobile lightweighting, building templates, aerospace and other fields. Advantages such as logistics, transportation, and industrial resources are interconnected. After magnesium alloy products are put into production in the future, priority adoption is expected in the Ningde era, especially in the direction of lightweight power batteries. Against the backdrop of stricter environmental policies and its own weight reduction demand boosting NEV companies' desire to reduce weight, although the company started late in the field of magnesium-aluminum alloy materials, it relied on partner NEV industry chains and customer resources, combined with the technical advantages of Wenda Magnesium, and used power battery lightweighting and construction templates as breakthroughs. Future development prospects in the light metal materials field are promising; investment suggestions: Benefiting from rising downstream sentiment, the overall performance of the company's drilling products is good. At the same time, the product structure is continuously optimized. Through industrial chain expansion, sales scale and profitability continue to increase. However, magnesium-aluminum alloys, as the new direction of the company's outreach development, are expected to be the highlight of the company's business breakthroughs. The company is expected to achieve operating income of 1,42/1,69/2,03 billion yuan respectively in 2023-2025, an increase of 46%/19%/20% over the previous year, and the net profit returned to the mother was 2.2/29/38 million yuan respectively, an increase of 47%/32%/30% over the previous year, corresponding to PE20X/15X/12X. Maintain a “buy” rating.

Risk warning: risk of fluctuations in raw material prices, impact of the epidemic on downstream demand, production progress of new projects falling short of expectations, etc.