Sanfu Xinke recently issued an announcement:

1) The semi-annual report was released on August 22, achieving revenue of 214 million yuan/yoy +16.55%, achieving net profit of 119 million yuan, and net profit of non-return net profit of -20 million yuan;

2) A fixed increase plan was announced on August 11. It is proposed to raise no more than 592 million yuan to invest in the “Special Material Project for New Environmentally-Friendly Surface Engineering” and the “High-end Complete Equipment Manufacturing Project for Composite Copper Foil” to supplement working capital.

Key points of investment

Revenue in a single quarter reached a record high, and profitability improved marginally

In 2023Q2, the company achieved revenue of 130 million yuan/yoy +33% /qoq +55%, a record high in revenue in a single quarter, mainly due to the improvement of equipment+chemical product layout; achieved net profit of -06 billion yuan, net profit of non-return net profit of -06 billion yuan, and loss margins narrowed over the same period. On the one hand, the company's performance loss was due to the payment of a large amount of equity incentive expenses; on the other hand, depreciation expenses increased due to the addition of new office buildings; on the other hand, the loss margin narrowed due to marginal improvements in profitability. The company's gross margin in 2023Q2 was 28.6% /yoy+0.95pct/qoq+2.31pct. On the other hand, the company's cost rate for 2023Q2 was 6.92% /yoy-0.22pct/qoq-2.6pct, and the management fee rate was 20.6pct %/yoy-4.74pct/qoq-5.42pct

The business model gradually became closed. Multi-link collaboration helped the company grow steadily. The company completed its holdings of Mingyi Electronics and Jiangxi Boquan during the reporting period, achieving a closed loop in the equipment, process and chemicals industries, and a “3+2” strategic layout was gradually formed.

Since its establishment, the company has focused on the field of surface treatment. Its main products are electronics and electroplating chemicals. In order to seek a closed loop in the business model and open up room for long-term growth, the company proposed a “3+2" development strategy, with electronic chemicals, general electroplating special chemicals, and equipment business as the three major business segments, and the field of new energy and special chemicals for special equipment as the two major pillars of the company's business. The merger of Ming Yi Electronics and Jiangxi Boquan can not only complete the company's equipment business, but also help the company complete full coverage of the six core PCB processes and form a synergistic effect on downstream clients, forming a multi-dimensional closed loop of industry, which is expected to promote the company's long-term steady growth.

Add-on composite copper foil, one-step process helps companies differentiate their competition

Composite fluid collector has advantages such as high safety, high battery energy density, etc., and the cost of composite copper foil is superior to that of electrolytic copper foil. Based on this, the trend of the composite collector industry is clear, and industrial capital is being vigorously promoted. Kirin batteries using composite fluid collectors in the Ningde era have already been installed. GAC Aian magazine battery 2.0 and Tianneng Battery's new-generation lithium-manganese-iron battery TP-MAX will also use composite collectors.

The company plans to increase the delivery capacity of composite copper foil equipment through a fixed increase of 98 million yuan for a high-end complete equipment manufacturing project for composite copper foil. The company's composite copper foil business uses a one-step chemical plating process, which mainly involves equipment and electroplating potions. The one-step chemical plating method has many advantages over other processes: 1) In terms of quality, the product obtained by this process has a dense coating and excellent conductivity; 2) the yield is better; 3) it can be applied to different base film materials such as PP, PET, and PI; 4) It can achieve a higher width and improve production efficiency. At present, the composite fluid collector industry is still in the early stages of development, and the final technical route is yet to be determined. The company is expected to occupy a place in the industry with its unique process.

Profit forecasting

Since the company's composite copper foil business is in the early stages of industrialization, without considering this business and the impact of fixed increases on the company's performance and share capital, it is estimated that in 2023/2024/2025, the company's net profit at the parent level will be 0.4/1.3/150 million yuan, eps 0.38/1.41/1.64 yuan, and the corresponding PE will be 182/48/42 times, respectively. Based on the gradual formation of the company's 3+2 business layout and differentiated competition in the composite copper foil business, we are optimistic about the company's medium- to long-term upward development opportunities and maintain a “buy” rating.

Risk warning

The fixed increase fell short of expectations; the composite copper foil business fell short of expectations; there was a risk of policy fluctuation; downstream demand fell short of expectations; product prices fell short of expectations; there was a risk that the competitive landscape would worsen; capacity expansion and digestion fell short of expectations.