Company Profile

Hunan Sokan New Materials Co Ltd is a company mainly engaged in the production and sales of coatings. The Company's products are comprised of coatings and special inks. The coating products include physical vapor deposition (PVD) coatings, ultraviolet curing (UV) color paints, heat-cured touch coatings and heat-cured non-touching coatings. The special ink products include protective inks and decorative inks. The Company's products are applied in the areas of computers, communications, consumer electronics and passenger car parts. (Source: MarketScreener)

Event

Hunan Sokan New Materials Co Ltd (the company) announced its preliminary financial results of 2022.

In 2022, the company achieved a revenue of CNY 508 million, down 0.05% from a year earlier; it made CNY 82 million in net income attributable to shareholders, a decrease of 15.93% from a year earlier; it achieved CNY 70 million in net income deducting non-recurring items, down 12.56% from a year prior.

In 4Q22, the company’s revenue came in at CNY 120 million, down 14.71% from a year earlier and 13.95% from a quarter earlier; its net income attributable to shareholders stood at CNY 18 million, a decrease of 29.87% from a year earlier and 28.83% from a quarter prior; its net income deducting non-recurring items was CNY 12 million, down 28.51% from a year earlier and 45.81% from a quarter earlier.

Comments

Maintain “Outperform” rating for the company.

In 2022, due to the sluggish demand for high-end consumer electronics, the company’s income from mobile phone and related parts, laptops and related parts, and intelligent household appliances declined by 22.47%, 13.38% and 0.15% from a year earlier. While the revenue from passenger car parts and wearable equipment went up by 236.76% and 33.11%, thanks to the smooth business expansion.

As for the expenses, attributed to the strategic investments in innovative projects, upgrading of structure, and new business layout in 2022, the company’s R&D expenses and administrative expenses went up by 26.88% and 22.78% from a year earlier, making its performance under pressure.

Hunan Sokan New Materials Co Ltd is a hi-tech enterprise specializing in high-end coatings. Its products are widely applied to high-end consumer electronics and passenger cars. It has grown into a platform-like coating supplier with innovative research and development as the core.

By virtue of its own technologies and services, the company has accelerated its client expansion, and successfully forayed into the supply chain of multiple internationally known consumer electronics enterprises and whole vehicle/ parts companies.

Looking ahead, with booming demand for high-end electronics across the globe and the rise of China’s consumer electronics manufacturers, the company’s coating for consumer electronics is expected to expand continuously. In the meantime, with the rapid increase in output and sales volume of new energy vehicle as well as in market　　penetration rate, the company’s coating for passenger cars will also benefit from it, boasting huge growth potential.

Earnings forecast and investment recommendation

We revised our forecasts for the company’s EPS at CNY 1.03 in 2022, CNY 1.70 in 2023, and CNY 2.79 in 2024. Reiterate “Outperform”.

Potential risks

price hikes of raw materials; slower-than-expected recovery in domestic demand; geopolitical risks