Matters:
The company released the 2023 annual report and the first quarter report of 2024, and the company achieved revenue of 37.8 in 2023
100 million yuan, -2.3% year over year, achieved net profit of 17 million yuan, realized net profit deducted from mother of -0.3 billion yuan, or -112.4% year on year; in the first quarter of 2024, the company achieved revenue of 890 million yuan, +4.5% year over year, realized net profit to mother of -0.3 billion, -206.7% year over year, realized deduction of non-net profit of -0.3 billion, and -254.9% year over year.
Commentary:
Copper foil processing costs continue to decline, putting pressure on the company's profitability. Affected by the slowdown in downstream demand and the sharp increase in new production capacity in the copper foil industry, processing costs in the copper foil industry continued to decline. According to IFIND, the average processing cost of 6 μm lithium copper foil in 2023 was 25,000 yuan/ton, down 41.8% year on year. The average processing cost of the Q1 industry in 24 was 16,000 yuan/ton, down 51.2% year on year, 22.2% month on month. The company's profit margin fell sharply as a result. The company's gross margin for 2023Q4/2024Q1 was 1.9%, respectively. The 2023Q4/2024Q1 net interest rate declined by 3.9/5.9pcts, and the 2023Q4/2024Q1 net margin was 1.1%/-3.1%, respectively, down 2.2/6.1 pcts year-on-year.
Expenses are well controlled, and there is plenty of cash on the books. The company's expense ratio for the full year of '23 was 2.6%, down 0.3 pcts year on year, and the sales/management/R&D/finance expenses ratio was 0.17%/0.67%/1.94%/-0.17%, respectively, +0.02/-0.34/+0.20/-0.14 pcts year on year, respectively. As of 24Q1, the company's monetary capital/transactional financial assets were 1,238/300 million yuan respectively, with a balance ratio of 22.20%. Cash was abundant and the financial stability was stable.
Copper foil sales are growing steadily, and the product structure continues to be optimized. In '23, the company sold 43,000 tons of copper foil, up 7.15% year on year. Total copper foil revenue was 3.375 billion yuan, of which lithium battery copper foil accounted for 33.8% and PCB copper foil accounted for 66.2%. Structurally, among the company's lithium battery copper foil, copper foil production of 6 μm and below grew rapidly, accounting for 83.79% of the total lithium battery copper foil production. Among PCB copper foils, the proportion of copper foil used for high-frequency high-speed substrates has steadily increased to 13.7%; HVLP1 and HVLP2 copper foils have been supplied to customers in batches, HVLP3 copper foil has passed full performance tests for end customers, and carrier copper foil has broken through core technology.
Investment advice: The company is a leader in replacing domestic high-frequency high-speed copper foil (HVLP), but due to increased competition in the industry, the overall processing costs of the copper foil industry have declined sharply, and the company's profitability level is at a low point. We lowered our net profit forecast for 24 to 100 million yuan, and added the 25-26 year net profit forecast to 0.9/220 million, and the corresponding EPS was 0.01/0.11/0.26 yuan respectively, maintaining the “recommended” rating.
Risk warning: Demand in the PCB industry and lithium battery industry is unanticipated; processing costs fall short of expectations due to continued intense competition in the industry; new product development and promotion fall short of expectations.