Event: Dinglong Co., Ltd. released its 2022 annual report. During the reporting period, it achieved operating income of 2,721 million yuan (+15.52% year-on-year), net profit attributable to shareholders of listed companies of 399 million yuan (+82.66% year on year), net profit of 348 million yuan after deducting non-return mother's net profit of 348 million yuan (+8.72% year on year, +19.13% month on month), and realized net profit of non-mother (+0.79 million yuan) after deducting non-mother's net profit (+0.79 million yuan) +38.04% YoY, -16.84% YoY). 2022 gross profit margin 38.09% (+4.65 pets year over year), net interest rate 16.69% (+6.29 pets year over year); 04 gross profit margin 37.63% (+6.17 pct year over year, -1.48 pct month on month), net interest rate 14.35% (+4.27pct year on year, -3.79pct month on month)

The volume of CMP polishing materials continues to be released, indicating that packaging materials are progressing smoothly: during the reporting period, the company's new semiconductor materials achieved revenue of 522 million yuan (+70% year-on-year), which increased to 19%, and the gross profit margin was 65.54% (+2.24pct year-on-year). 1) In terms of polishing pads, the company's CMP polishing pads achieved revenue of 457 million yuan in 2022 (+51.32% year on year), the subsidiary Dinghui Microelectronics achieved revenue of 496 million yuan in 2022 (+63.95% year-on-year), and net profit of 231 million yuan (+110.25% year-on-year). The new Qianjiang Phase III polishing pad product (200,000 pieces/year cushion) and the expansion project for the raw materials for its core jacket were put into trial production in 202203. The first order was obtained for 04 new Qianjiang polishing pads, which further exploited production potential based on the total production capacity of 300,000 pieces in Phase 1 and 2 of the Wuhan headquarters. 2) Polishing liquid and cleaning solution, which achieved revenue of 17.89 million yuan during the reporting period; in terms of polishing liquid, the company laid out nearly 40 products in a series such as multi-grade silicon process, metal copper process, metal aluminum process, barrier layer process, tungsten metal process, dielectric layer process, etc. Among them, polishing liquid for aluminum oxide abrasives, dielectric material polishing liquid and tungsten polishing liquid products have been sold in bulk. The rest of the process products have entered the verification and introduction stage and are expected to receive new orders in 2023. In addition, the company has achieved independent preparation of grinding particles as upstream core raw materials to enhance the core competitiveness of polishing liquid products. In terms of cleaning liquid, CMP post-cleaning liquid products made of copper process have continued to receive orders, and new products such as self-aligning cleaning solutions and laser protective gel cleaning solutions have also received a certain amount of sales revenue: other post-process cleaning solutions and advanced packaging cleaning liquid products are being verified. The Wuhan headquarters fully automated polishing liquid production line with an annual production capacity of 5,000 tons and a cleaning liquid production line with an annual production capacity of 2,000 tons has a stable supply. Production capacity construction projects such as the Xiantao CMP cleaning liquid expansion project with an annual output of 10,000 tons, a CMP polishing liquid expansion project with an annual output of 20,000 tons, and a supporting production expansion project for grinding particles is expected to be put into operation in 2023. 3) In terms of semiconductor display materials, sales of flexible display base material YPI products have continued to grow and have become the number one supplier for some mainstream panel customers: PSPI, as the only domestic supplier in China, began shipping in Q3 2022. In 2022, the company's semiconductor display materials YPI and PSPI products achieved sales revenue of 47.28 million yuan (+439% year on year), a significant increase from quarter to quarter. The PSPI Phase II expansion project with an annual production capacity of 1,000 tons in the Dinglong (Xiantao) Optoelectronic Semiconductor Materials Industrial Park is expected to achieve large-scale mass production in mid-2023. Other new display products such as plate packaging material TFE-INK, low temperature photoresistor material OC, high fold OC, and high fold INK are also being developed and verified. 4) In terms of advanced packaging materials for semiconductors, product development and verification progressed rapidly as planned, and mass production and introduction of some key products began: it is expected that in Q2 2023, two temporary chain adhesives will have a total production capacity of 110 tons per year, and the production capacity of 2 types of packaged photoresists will be achieved in the second half of 2023. 5) Integrated circuit chip design and application. On the basis of the steady development of the consumables chip business, the company is speeding up the deployment of new product directions such as safety chips for industrial grade and vehicle grade applications, providing new growth impetus for the continuous transformation and upgrading of the company's chip design business.

Steady operation of general consumables for printing and copying: The printing and copying general consumables business is the company's traditional business. A collaborative breakthrough in the upstream and downstream of the industry chain achieved a double increase in revenue and profit. During the reporting period, the printing and copying general consumables sector (including printing consumables chips) achieved revenue of 2,142 billion yuan (+6.43% year-on-year), accounting for 79% of revenue, and a gross profit margin of 32.62% (+3.46pct year-on-year).

Profit forecast and investment advice: The company's net profit for 2023-2025 is expected to be 518 million yuan, 708 million yuan and 940 million yuan respectively, up 32.91%, 36.64% and 32.71% over the previous year; corresponding to current stock prices PE is 4826 times, 35.32 times, and 26.61 times, giving it an “increase in holdings” rating.

Risk warning: Downstream demand falls short of expectations, and project progress falls short of expectations.