With the passivation of the global smartphone market, 2021H1's sales and prices have declined, with revenue of 123 million yuan in the first half of the year, down 16.12% from the same period last year, and net profit of 37 million yuan, down 43.35% from the same period last year.

The company continued to increase R & D expenditure, with R & D investment of 23 million yuan in the reporting period, an increase of 22.21% over the same period last year As a leading enterprise of electromagnetic shielding film, Zhuhai ultra-thin copper foil and Guangzhou fund-raising projects have entered the end, and are expected to be put into production and gradually put into production in 2022. We believe that the company is under pressure under the influence of the downstream environment in the short term, but the trend of business diversification remains unchanged in the long run, giving a target price of 113.8 yuan and maintaining a "buy" rating.

The company's semi-annual report for 2021 fell short of expectations. In 2021, H1 Company realized revenue of 123 million yuan, down 16.12% from the same period last year, realized net profit of 37 million yuan, down 43.35% from the same period last year, and deducted 30 million yuan from non-net profit, down 42.86% from the same period last year. Among them, revenue and return net profit in the second quarter were 64 million yuan and 18 million yuan respectively, down 23.08% and 42.57% respectively from the same period last year.

The main business was under pressure, with revenue and net profit declining compared with the same period last year. During the reporting period, revenue decreased by 16.12% compared with the same period last year, mainly due to the decline in the unit price of electromagnetic shielding film compared with the same period last year, and product sales also declined under the passivation of the growth of the global smartphone market. Sales expenses and management expenses increased by 43.05% and 46.34% respectively compared with the same period last year, mainly due to the increase in business promotion, travel, intermediary services, employee compensation and other expenses. Net cash flow from 2021H1's operating activities decreased by 48.86% compared with the same period last year, mainly due to an increase in inventory. According to the quarterly mobile phone tracking report released by IDC, due to the absence of focus products and continued low demand for replacement, 2021Q2 China shipped about 78.1 million smartphones, down 11.0% from the same period last year. The company's main products electromagnetic shielding film is widely used in intelligent electronic equipment, due to the passivation of the above market environment, the volume and price of the main income has declined, while the cost side of the company has increased, resulting in a significant decline in net profit.

Investment in R & D continues to increase, and technology accumulation is gradually profound. During the reporting period, the company invested 23 million yuan in R & D, an increase of 22.21% over the same period last year. Focusing on electromagnetic shielding, extremely thin flexible copper clad laminate, ultra-thin copper foil, and resistive film, the company applied for a total of 33 domestic invention patents and utility model patents, exceeding the level of the same period in 2020. At present, the product structure of the company is relatively simple, and the downstream application fields are more concentrated. In the future, the company will combine technological innovation and integrated application to achieve diversified products and improve core competitiveness.

The project under construction is coming to an end, and the amount of profit can be expected in the future. As of the reporting date, the Guangzhou fundraising project has completed the civil engineering cap, the main equipment is in the process of arrival and hoisting into the plant, and has not yet formed large-scale sales revenue. According to the company's prospectus, the investment project will form a capacity of 300000 square meters / month electromagnetic shielding film (mainly HSF-USB3) after reaching production. In addition, the Zhuhai ultra-thin copper foil project has basically completed the civil engineering construction, some production lines have begun trial production of lithium copper foil products, and the customer testing and certification of all kinds of copper foil products have been carried out in an orderly manner. With the steady expansion of China's flexible copper clad laminate market and the continuous improvement of technical content, the company integrates R & D advantages and production capacity, and is expected to form a new profit growth point after large-scale production. We predict that the above projects will be gradually put into production and form large-scale sales revenue from 2022, and achieve volume by 2024.

Risk factors: declining gross profit margin; single product structure; weak downstream demand; lower industry barriers or intensified market competition; production line installation certification and production failed to meet expectations.

Investment advice: due to the decline in market demand for downstream products and the increase in their own costs, the company's 2021H1 revenue and return net profit shrank, resulting in short-term sales and price pressure. As a result, we downgrade the company's 22-year homing net profit forecast of 110.22 million yuan (the original forecast is 2.04 trillion yuan), and the new 2023 net profit forecast is 317 million yuan, corresponding to the EPS forecast of 1.37 pound 2.53 yuan 3.96 yuan (the original forecast is 1.61 pound 2.56 million yuan). In the end, we lowered the company's 22-year return net profit forecast to 110 million million yuan (the original forecast was 2.04 million yuan), and increased the 2023 net profit forecast to 317 million yuan. With reference to the comparable company's PE valuation, taking into account that the company belongs to the leading enterprise in the electromagnetic shielding film industry, the long-term production line volume and the trend for the better after business diversification remains unchanged, and the high growth expectation after the release of projects under construction, give the company a valuation of 45 times PE in 2022, corresponding to the target price of 113.8 yuan, maintaining the "buy" rating.