The 2023 results are under slight pressure. We are optimistic about the recovery in downstream demand and the release of new products, and maintain the “buy” rating

The company released its 2023 annual report, achieving annual revenue of 1,550 billion yuan, -16.80% year-on-year, and realized net profit of 171 million yuan, or -17.18% year-on-year. Among them, 2023Q4 achieved operating income of 371 million yuan, -7.28% year-on-year, -4.52% month-on-month, and realized net profit of 49 million yuan, +140.78% year-on-year and +5.32% month-on-month. Considering that the recovery of the industry sentiment fell short of expectations, we lowered the company's 2024-2025 profit forecast and added the 2026 profit forecast. The company's net profit for 2024-2026 is 2.21 (-0.28), 2.87 (-0.50), and 363 million yuan, respectively, with EPS of 1.84 (-0.23), 2.38 (-0.42), and 3.01 yuan, respectively. The PE corresponding to the current stock price is 24.3, 18.7, and 14.8 times, respectively. The company is a domestic high-quality specialty gas leader, and its products mainly focus on the IC field.

In the future, along with the recovery in downstream demand and the release of new products, the company's performance is expected to maintain rapid growth and maintain a “buy” rating.

Multiple factors led to a decline in the company's performance in 2023, but the overall gross margin continued to improve. According to the company's announcement, the reasons for the year-on-year decline in the company's performance in 2023 were due to the return of rare gas prices to normal (the company's photolithography and other mixed gas revenue in 2023 was -345 million), the decline in the operating rate of semiconductor manufacturers due to poor demand for consumer electronics, etc., and an increase in interest expenses on the company's convertible bonds due to the completion of the issuance of convertible bonds. Although the company's profit declined year-on-year, according to Wind data, the company's gross sales margin reached 30.59% in 2023, an increase of 3.71 pcts over the previous year. This may be due to the increase in the profit level of the company's overseas business, the launch of high-value-added products, and the support of the entire industry chain layout of some specialty gas products.

The expansion of the specialty gas category goes hand in hand with the expansion of production capacity. The company's long-term growth is worth looking forward to in terms of capacity expansion. Currently, the company's ongoing projects at bases in Nantong, Jiangsu, Zigong, Sichuan, and Jiujiang, Jiangxi are progressing steadily, and are expected to be implemented one after another from 2024Q4. In terms of product categories, the company actively attaches importance to R&D and innovation, and continues to expand the specialty category. According to the company's announcement, by the end of 2023, the company had achieved import substitution of more than 55 specialty gas categories and 57 ongoing research projects. Among them, the company's various high value-added products such as germanium, ethysilane, and hexafluorobutadiene are in the process of early certification or release. Looking forward to the future, we believe that with the continued release of the company's various new products with high added value and the gradual recovery in demand for downstream terminals, the company's performance is expected to usher in a concentrated release.

Risk warning: downstream demand falls short of expectations, product development falls short of expectations, project commissioning process falls short of expectations, etc.