Incident review: Dinglong Co., Ltd. released its 2022 annual report and the first quarter report of 2023. It achieved revenue of 2,721 million yuan in 2022, an increase of 15.52% over the previous year; net profit of the return mother was 348 million yuan, up 68.47% year on year; gross margin was 38.09%, up 4.65 pcts year on year; net interest rate was 16.69%, up 6.29 pcts year on year. The 2022 results were in line with expectations. The company achieved revenue of 547 million yuan in the first quarter of 2023, with net profit of 35 million yuan; gross margin was 34.64%, down 2.99 pcts month-on-month and 4.36 pcts; net interest rate was 7.13%, down 7.22 cts month-on-month and 6.92 pcts year-on-year.
Printing and copying supplies are the company's main revenue contributor, and the share of CMP polishing pads is growing rapidly. The revenue of printing and copying supplies in 2022 was 2,142 million yuan, up 6.43% year on year, accounting for 78.71% of revenue, gross margin of 32.62%; CMP polishing pad revenue was 522 million yuan, up 69.93% year on year, accounting for 19.19% of revenue, gross margin of 65.54%; revenue from other businesses was $57 million, up 59.02% year on year, accounting for 2.10% of revenue, gross margin of -7.40%.
The main reasons for the change in performance include: (1) New product projects for various materials continue to develop rapidly at different stages in various semiconductor material segments, creating a second growth curve. ① Polishing pads achieved revenue of 457 million yuan, a year-on-year increase of 51.32%, continued rapid growth, and the leading position of domestic polishing pads was established; ② Various CMP polishing solutions and cleaning products continued to be sold on a large scale with clients, achieving revenue of 17.89 million yuan; ③ Sales of YPI products based on flexible displays continued to grow and became the number one supplier for some mainstream panel customers; PSPI, as the only domestic supplier in China, began mass shipments in the third quarter of 2022. In 2022, the company achieved sales of YPI and PSPI products for semiconductor display materials Revenue was 47.28 million yuan, a year-on-year increase of 439%. (2) The consumables business has made collaborative breakthroughs in the upstream and downstream products industry chain, and revenue and profits have both increased. ① Maintaining the leading position in the color toner industry, revenue and net profit increased both year-on-year in 2022, production and sales increased sharply year-on-year, and monthly toner shipments reached a record high. ② Sales in the toner cartridge business hit a new high in recent years, operating income increased sharply by 28%, and profits turned a loss into a profit year over year. ③ Recycled ink cartridges achieved a record high of ink cartridges shipped in a single month.
A variety of new polishing pads are being tested and samples sent, and production expansion projects are put into operation, and production is expected to continue to increase. In terms of product development, on the basis of ensuring that the existing polishing pad products in the Wuhan headquarters meet the usage and improvement needs of downstream customers, the research and development of new Qianjiang polishing pads was vigorously carried out. In the second half of 2022, various new polishing pad products were promoted to pilot testing and samples were sent to customers. The feedback was good, and the first order for new Qianjiang polishing pads was obtained in the fourth quarter, making breakthrough progress to achieve a comprehensive layout of all series of polishing pads in the market. In terms of production: The company improved the production process, optimized production equipment and testing methods, improved quality and efficiency, and further exploited production potential based on the combined production capacity of the first and second phases of the Wuhan headquarters — an annual output of 300,000 polishing pads. Furthermore, the Qianjiang Phase III polishing pad product and its core jacket raw material expansion project have been put into operation, adding to the production capacity of 200,000 new polishing pads, which will be gradually released in the future.
CMP polishing liquid and cleaning liquid products are gradually shifting to large-scale production. The Wuhan headquarters fully automated polishing liquid production line with an annual production capacity of 5,000 tons and a cleaning liquid production line with an annual production capacity of 2,000 tons has stable supply. The Xiantao CMP cleaning liquid expansion project with an annual output of 10,000 tons, the annual CMP polishing liquid expansion project, and the grinding particle supporting production expansion project have completed the plant ceiling and production line equipment planning. The installation is expected to be completed in 2023, laying the foundation for continued stable volume production in the later stages.
Flexible display base material YPI products have become the number one supplier for some mainstream panel customers, and PSPI downstream panel customer verification has broken foreign monopolies. Yellow polyimide slurry YPI products continue to receive orders from G6 line from core domestic customers throughout the year. It is the only YPI supplier that has achieved mass production and delivery. It has now covered all mainstream AMOLED customers in China to form large-scale sales, and product competitiveness continues to improve. The company's photosensitive polyimide PSPI products are the only domestic companies that have been verified by downstream panel customers. Mass sales began on clients in the third quarter of 2022, breaking the long-term monopoly situation of international leaders.
Investment advice: We forecast that the company's revenue from 2023 to 2025 will be 33.05/40.43/4.757 billion yuan respectively, with a growth rate of 21.5%/22.3%/17.7% respectively; the net profit of the mother is 535/705/902 million yuan respectively, with a growth rate of 37.1%/31.8%/28.0% respectively; corresponding PE is 47.0/35.7/27.9 respectively. Considering that Dinglong Co., Ltd. is the target of the scarcity of polishing pads in China and has achieved a comprehensive layout of various types of polishing pads available in the market, superimposing domestic substitution has ushered in a historic opportunity for the introduction of domestic semiconductor materials, covering it for the first time, and making a buy-A recommendation.
Risk warning: Risk of changes in the macroeconomic environment; risks of new business layout falling short of expectations; domestic production substitution process falling short of expectations.