Event

The company released its three-quarter report for 2021, with revenue of 4.24 billion yuan in the first three quarters of 21, an increase of 22.3% over the same period last year, and a net profit of 973 million yuan, an increase of 116% over the same period last year. In the third quarter, the company achieved revenue of 1.6 billion yuan, an increase of 21% over the same period last year, and a net profit of 370 million yuan, an increase of 69% over the same period last year.

Brief comment

Optical materials and new energy materials have a strong growth momentum, and the company's performance has taken off in the first three quarters.

In 2020, the global market demand for BOPET film is more than 5 million tons, with a wide range of applications. China has gradually become the most important production base and consumer market for global polyester film products, and the production capacity of polyester film has ranked first in the world. As an industry leader, the company has been carefully cultivated BOPET, the market share of polyester film ranks first in the world for three consecutive years, at the same time, the company continues to add high-end production lines, the variety and quality of high-end products have been greatly improved. Since 2021, with the vigorous development of downstream panel industry and photovoltaic industry, high-end BOPET materials are booming. Superposition companies continue to optimize product structure through "five major plates", high-quality core resources gradually tilt to high-margin new materials business, and the company's net profit increases year after year, rising from 121 million yuan in 2015 to 721 million yuan in 2020, with a compound growth rate of 43 percent. In the first three quarters of 2021, the net profit reached 973 million yuan, an increase of 116% over the same period last year, and the performance level continued to lead the industry. From the perspective of optical material film business, thanks to the continuous growth of demand for liquid crystal displays, mobile phones, computers and other terminal electronic products, the demand for liquid crystal modules is increasing, and the optical film market is developing rapidly. the market scale increased from 27.18 billion yuan in 2014 to 41.67 billion yuan in 2020, with an annual growth rate of 6.0%. On the one hand, the company increases its efforts in product development, on the other hand, it actively expands domestic and foreign markets, and has won many bids for domestic first-tier brand collection projects such as XIAOMI, Hisense and BOE. At the same time, its share in the supply of international brands such as Samsung and LG has increased significantly compared with last year, resulting in a rapid increase in the number of newly signed orders and a breakthrough in order share. The performance of the optical film increased by 25% in the first half compared with the same period last year, and the gross profit margin rose 18 percentage points to 39%. Since the third quarter, the industry has been booming, and the company has further broadened the production and marketing channels to help the company continue to improve its efficiency. At present, the new production capacity of 300000 tons of optical film project is still climbing, mainly optical materials, and it is expected that the gradual release of production and sales in 22 years will bring greater performance improvement. From the perspective of new energy material membrane business, the scale of global solar energy development has expanded rapidly since the low-carbon era, downstream photovoltaic power generation has gradually achieved affordable access to the Internet, and the photovoltaic industry continues to boom, driving the increasing demand for photovoltaic backplane substrate film. The company's revenue from related products rose sharply in the first half of the year, up 113% from the same period last year, and the gross profit margin rose 14% from the same period last year to 34%. Demand has also been relatively stable since the third quarter, and the performance growth momentum has been improving. With the sharp increase in demand for high-end products, the company actively adjusts its product structure, switching production capacity to high value-added products, the proportion of new products continues to increase, and the benefits of the five major sectors of new materials account for more than 70%. In the future, the proportion of the company's optical films and other high-function polyester film products will continue to increase. Driven by downstream demand and superimposed product structure adjustment, the company's performance grew rapidly in the first three quarters, and with the further release of new production capacity, the company's gross profit margin is expected to further increase. from the original main functional packaging materials enterprises to optics, photovoltaic, information and other film materials innovative high-end enterprises gradually transformed.

The company has abundant cash flow, high-function membrane projects are promoted in an orderly manner, and the momentum of future performance growth is sufficient. The company has steadily promoted the optical film project with an annual output of 200 million square meters (300000 tons of high-function film materials). Since the third quarter, the advance payment of the company has increased by 122 million yuan compared with the previous quarter, and the project under construction has increased by 380 million yuan. From a single quarter point of view, the company's purchase and construction of fixed intangible long-term assets reached 650 million yuan in the third quarter, a record high in a single quarter, and the project construction momentum is strong. At the same time, benefiting from the thickening profits, the company had a net cash inflow of 772 million yuan from operating activities in the third quarter, also a record high. while the project continued to invest money, the company's cash flow still rose slightly, as of September 30, the company's cash and equivalents were 949 million yuan, an increase of 11 million yuan compared to the second quarter and 78 million yuan over the same period last year, providing strong support for future project construction. After the 200 million square meter optical film project is put into production, the company is expected to double the production capacity of new materials, and the scale advantage will provide a solid foundation for the company's future performance growth. The second phase of the project has a total of 6 production lines, each with a full annual production capacity of 50,000 tons. The first four production lines will be delivered in April, June, July and September respectively; the remaining two production lines are expected to be delivered in October and November, with a capacity of 300000 tons by the end of 21 and a large-scale contribution in 22 years. 80% of the project capacity can be used for the production of optical diaphragms and other new materials, and the new production capacity in the third quarter is limited. With the improvement of the operating rate and stable operation of the company's production line, 22-year production and sales of related products are expected to increase significantly, contributing to high revenue growth.

In the first half of 22, the company expects another 200000 tons of functional membrane capacity to be delivered, and the project construction is progressing steadily, injecting new momentum into the 22-year performance growth, and striving to achieve the production capacity of 2 million tons and output value of 20 billion during the 14th five-year Plan period. Under the condition of excellent cash flow, the smooth operation of the company and the orderly promotion of project construction have a strong guarantee. With the gradual release of new production capacity of high-function membrane projects, performance growth is expected to ignite a new engine. The company's future high-speed growth momentum is sufficient, the prospect is promising.

Per capita income and profits are in the forefront of the industry, and equity incentives contribute to high-quality development. The per capita income of the company in 2020 and the first three quarters of 2021 is 318 yuan and 2.67 million yuan respectively, and the per capita profit is 45 yuan and 6.1 billion yuan respectively. In order to further stimulate the enthusiasm of employees, the company launched an equity incentive plan in 2021 to implement equity incentives for the company's directors, senior managers, core managers and core business backbone personnel. On August 11, the company announced that it had completed the grant and registration of stock incentive restricted shares, which were derived from shares repurchased from the secondary market at a grant price of 6.98 yuan per share. The incentive plan has three characteristics: 1 it has a clear corporate performance target as a guide, specifically taking the growth rate of net interest rate as an indicator, and taking the net profit in 2021 as the base, the growth rate of net profit in 2020-2023 is not less than 60%, 110% and 160%, respectively. It fully reflects the company's determination and confidence to maintain sustained high growth. (2) it is divided into two aspects: corporate level and individual level, which is more comprehensive and more operable. (3) it covers a wide range of people, and the company now has 1591 employees. The incentive program covers 251employees, accounting for 16%, of which 11 executives get restricted stock (17%). Core managers, core technical (business) personnel, backbone employees, etc., a total of 240people get restricted stock, accounting for 83%. The plan effectively binds the interests of shareholders, the interests of the company and the personal interests of the core team together, fully mobilize the enthusiasm of personnel, and contribute to the longer-term development of the company. On the good basis of per capita income and profit-making leading the industry, the company strives for development, gradually establishes a sound long-term incentive mechanism, superimposed product structure upgrading, higher degree of automation, the company's high-quality and stable development momentum.

Profit forecast and valuation: the company's net profit forecast for 2021, 2022 and 2023 is 1.4 billion yuan, 1.79 billion yuan and 2.21 billion yuan respectively, EPS is 1.21,1.55 yuan and 1.91 yuan respectively, PE is 20.8X, 16.3X and 13.2x respectively. Based on the 2022 profit forecast, the company is given 25 times PE with a target price of 38.8 yuan per share, maintaining the "buy" rating.

Risk analysis: the project production is not as expected, and the downstream demand is not as expected.