We have been deeply involved in electronic ceramics for half a century, taking into account excellent scale growth and profitability. Established in 1970, Sanhuan has continued to be deeply involved in the field of electronic ceramic components and basic materials for more than half a century. From the initial single resistor business to the current diversified product line including communication components, MLCCs, and ceramic packaging substrates, the MLCC business that the company has seized industry opportunities in recent years is expected to become the main force for future growth. The company's performance grew rapidly, with revenue and net profit CAGR of 10.9% and 11.5% for 2013-2022, respectively. The profit margin of the Third Ring Road has remained high for a long time. The average gross margin and net profit margin for 2018-2022 were divided into 49% and 33%.
The domestic leader in electronic ceramics is expected to replicate the growth path of overseas giants in expanding categories. In 2022, the global electronic ceramics industry reached 186 billion yuan, and the Chinese market reached 99.8 billion yuan, but the supply share of local companies was small, and the domestic substitution trend was very clear. The powder preparation method of electronic ceramics is highly related to the component manufacturing process, and can be expanded into the field of downstream components by relying on underlying technology. Compared to overseas electronic ceramic giants such as Murata and Kyocera, Sanwan's product line still has huge room for expansion. The company has also established a “materials +” strategy. Through group-level technology platforms and other methods, it is expected that it will replicate the product line of overseas ceramic materials companies that continue to expand.
The 100 billion MLCC market is currently focusing on breakthroughs in the Third Ring Road. The MLCC industry has always had huge market opportunities with 100 billion space plus low localization rate. Against the backdrop of strong production and sales in 17-19, the company seized the opportunities of capacity transfer and downstream demand growth, and launched several projects in a row to enter MLCC projects. The total production capacity of the two fund-raising projects reached 5,400 units/year. Currently, the market competitiveness of Sanhuan MLCC products continues to increase, and it continues to expand application fields, miniaturization, high capacity and high quality development.
Investment advice: As a leading electronic ceramics company, MLCC brings a new round of growth opportunities. We expect the company to achieve revenue of 56.1/73.8/9.20 billion yuan in 2023/2024/2025, net profit of 15.8/20.8/2.66 billion yuan, and net profit of 15.8/20.8/2.66 billion yuan, which is 35/26/21 times the PE corresponding to the market value on December 22, respectively. First coverage, giving the company a “buy” rating.
Risk warning: demand falls short of expectations, customer development falls short of expectations, product mass production falls short of expectations