The company's performance is steady, the product matrix is gradually enriched, high-end products are expected to gradually increase, and profitability and resilience to risks are expected to improve. Considering the large decline in the price of silicone products, we adjusted the company's 2023-2025 net profit forecast to 350, 4.47, and 551 million yuan, giving the company 18 times PE in 2024, maintaining a target price of 14 yuan and a “buy” rating.
The company's net profit declined in 23Q3 in the same period. The 2023Q1-Q3 company achieved revenue and net profit of 3.0 billion yuan and net profit of 3.0 billion yuan, +7% and +14% over the same period. 23Q3 revenue and net profit were 10.1 billion yuan and 0.7 billion yuan respectively, +2%, -7%, +0.3%, and -30% over the previous year. The gross margin was 20.5%, down 4.4 pcts from the previous month.
The price of raw materials is still low, and the company's gross margin is expected to increase. According to Zhuochuang, the average price of 23Q3 silicone DMC including tax was about 13,400 yuan/ton, down 7% from the previous month. The average price including tax in October was 14,400 yuan/ton, a slight rebound. We believe that at present, raw material prices are still relatively low. If raw material prices pick up, the company can maintain smooth price transmission capabilities and enjoy low stage inventory dividends. Overall, the company is expected to achieve rapid performance growth and increase in gross margin in 2023.
Production capacity has been expanded, and the company's product range has been further diversified. On the premise of guaranteeing a high market share of photovoltaic silica gel, the company lays out lithium battery anode adhesives and electronic adhesives to achieve a diversified layout. Judging from the company's capital expenditure in recent years, the increase in production capacity of silicone silicone is lower than that of polyurethane rubber and other rubber types. The company's 2021-2023H1 silicone revenue accounts for 53.7%, 52.1%, and 52.0%. We expect that with the gradual release of other adhesives production capacity, the revenue share will gradually decrease, the product structure will be diversified, and risk resistance will improve.
New products are gradually gaining strength, and high-end products are expected to gradually increase in volume. The company's transparent grid backboards, lithium battery anode adhesives, and electronic adhesive products are in the high-end category and have better profitability compared to more mature and stable photovoltaic silicone products. Products such as butyl rubber, water-blocking adhesives, PUR hot melt adhesives, epoxy underfillers, UV adhesives, chip binding adhesives, and lithium battery anode adhesives have all achieved technological breakthroughs and increased production and sales. With the gradual release of additional production capacity at the company's Guangzhou base, we believe the company's overall gross margin will increase further.
Risk factors: downstream demand falls short of expectations; raw material prices fluctuate sharply; construction of additional production capacity falls short of expectations; new business development falls short of expectations; the penetration rate of the company's new adhesive products falls short of expectations.
Profit forecast, valuation and rating: Considering the large decline in silicone product prices, we adjusted the company's net profit forecast for 2023-2025 to 3.50, 4.47, and 551 million yuan (the original forecast was 400, 5.38, 696 million yuan), and the corresponding EPS forecasts were 0.62, 0.80, and 0.99 yuan. Referring to the valuation of comparable companies (Silicon Labs Technology, Debon Technology, Zhonglai Co., Ltd., and Saiwu Technology, Wind in 2024, unanimously expected an average value of 18 times PE), they gave 18 times PE in 2024, maintained a target price of 14 yuan, and maintained a “buy” rating.