1H23 performance is lower than we expected.
The company announced 1H23 results: revenue 980 million yuan, year-on-year-29.59%; return to the mother net profit 223 million yuan, year-on-year-54.12%; deduction of non-net profit 221 million yuan, year-on-year-54.03%, the company's performance was lower than we expected, mainly due to the weak economy downstream of highly reliable electronic components and a decline in sales of core products. In a single quarter, 2Q23's revenue was 545 million yuan, year-on-year-20.95%, month-on-month + 25.08%; net profit returned to its mother was 121 million yuan,-46.54% year-on-year and + 19.38%.
Trend of development
Short-term prosperity is weak, core product sales and performance are under pressure. 1) under the influence of the weak downstream prosperity of special electronic components and the price reduction of some of the company's products, the sales and performance of 1H23's core products are under short-term pressure, of which: the company's self-produced business income is-31.31% to 566 million yuan, the core product ceramic capacitor revenue is-36.89% to 502 million yuan, and the agency business income is-26.88% to 412 million yuan. 2) the gross profit margin / net return rate of 1H23 is-8.5ppt/-12.2ppt to 46.5% / 22.7% respectively compared with the same period last year, which is mainly due to the change of the company's product structure and the increase of expense.
Continue to increase the business expansion, during the expense rate has expanded. 1) the period expense rate of 1H23 is from + 4.67ppt to 15.29% compared with the same period last year, of which the sales / R & D / management expense rate increased by 1.50ppt/1.23ppt/2.03ppt to 4.29% and 4.81% to 5.96% compared with the same period in 2022. During the reporting period, the company expanded its business layout around microwave modules, microcontrollers, microprocessors, ceramic circuit boards, ceramic shells and other new business areas, and established Hongyuan Innovation Research Institute as the company's scientific and technological innovation platform. continue to add code business development. 2) during the reporting period, the company's high-power RF microwave ceramic capacitors and packaging shell products have been partially developed and finalized, and small batch supply has been achieved. At the same time, the car gauge-level multi-layer ceramic capacitor representative specification has completed a series of research and development, product certification and customer certification, and achieved small batch supply.
Steady progress has been made in the construction of industrial bases to broaden the space for long-term growth. The company continued to promote the layout of industrial bases in Beijing, Suzhou, Chengdu, Hefei and other places. During the reporting period, the Hefei production base completed the renovation of the plant and production line; Hongyuan Suzhou Lab passed the evaluation of China National Accreditation Committee (CNAS); the company established Innovation Research Institute, and Hongyuan Electronic Innovation Center & Enterprise headquarters project started construction. We believe that with the gradual clarity of downstream demand, the gradual improvement of industrial layout and the release of production capacity are expected to further open up long-term growth space for the company.
Profit forecast and valuation
Taking into account the pace of downstream demand release, we downgrade the 2023 Universe earnings forecast of 41.5% for 2024 to RMB 565 to 673 million, and the current share price corresponds to the price-to-earnings ratio of 24.8 for 2024. We believe that the company is expected to usher in an inflection point, and we cut our target price by 29.8% to 73 yuan to maintain an outperform industry rating, corresponding to a potential 21.1% increase of 21.1% in 2023 Universe, which is 30.0x25.2 times earnings in 2024.
Risk
1) the progress of capacity construction and production is not as expected; 2) the product delivery is not as expected.