Focusing on new composite film materials, performance is growing steadily. The company achieved revenue of 1,289 million yuan in 2021, +40.33% year on year; Guimu's net profit was 123 million yuan, +16.53% year on year; 22Q1 revenue was 383 million yuan, +40.45% year on year; and Guimu's net profit was 33 million yuan, +34.27% year on year. The company was founded in 2007, is deeply involved in new composite film materials, and is mainly engaged in the solar cell backpanel business. Revenue will account for 83% in 2021, and its shipment volume will steadily rank among the top three in the industry. Based on mastering the formulations and production processes of a series of composite film material products with independent intellectual property rights during the development process, the company pioneered and laid out new businesses such as photovoltaic packaging films in the photovoltaic industry to supplement profits. At the same time, efforts are being made to lay out the lithium battery aluminum-plastic film field, which has technical homogeneity with the photovoltaic backplate. The new business is expected to become an important profit growth point for the company in the future, and the revenue structure will change healthily in the future.

Demand for aluminum-plastic film is strong, and the wave of domestic substitution is raging. The global aluminum-plastic film market is dominated by Japanese and South Korean companies. The domestic production rate in 2020 is less than 20%, and the supply position of domestic aluminum-plastic film is difficult to match with the market consumption position. Future demand is expected to usher in a sharp increase mainly due to: 1) Overseas aluminum-plastic film manufacturers expand production conservatively 2) The rise of domestic soft packaging, which superimposes the “soft pack+hard case” secondary packaging model of long and short blade batteries, brings incremental growth 3) Power battery companies are under pressure to reduce costs and domestic alternatives are increasing. We expect the aluminum-plastic film market space to be about 52/15.8 billion yuan in 21/25, with a CAGR of 32%.

Technological advantage+accelerated production expansion to build a moat for aluminum-plastic film business. The company's aluminum-plastic film business is expected to usher in a breakthrough, mainly due to its core competitiveness: 1) R&D investment barriers: The company maintains high investment in R&D all year round, relies on years of composite film technology accumulation, has six major patented technologies, and invented the dry heat composite method. Its key performance indicators are comparable to those of overseas products. 2) Independent research and development accelerates cost reduction: The company is one of the few domestic aluminum-plastic film manufacturers that have fully localized raw materials and equipment. Power/energy storage aluminum-plastic film accounted for 65% of shipments in 21 years. Currently, production capacity is climbing. After stabilization, the profit level can be compared to leading companies. 3) The customer introduction situation is good: The company currently has customers such as Payneng Technology, Ganfeng Battery, and Penghui Energy, all in the production expansion stage, while leading customers such as BYD, Funeng Technology, and ATL are in the verification stage. 4) Accelerate production expansion: The company has decided to increase its aluminum-plastic film production capacity by a total of 300 million square meters, and the IPO project of 10 million square meters will be fully produced. With the rapid expansion of scale, the profit level of aluminum-plastic film is expected to rise rapidly.

Based on the basic market of photovoltaic backboards, new businesses have blossomed more and more. The company has been deeply involved in the photovoltaic backboard industry for many years and has independently developed fluorine-free BO backplates based on M film substrate technology. Economy: BO backplates have superior performance or are flat on traditional fluorinated backboards, and are free from the price factor of PVDF materials, making them more profitable than traditional backboard products. Customer: At present, the company's BO backplates have been delivered in batches to leading large component manufacturers. Production capacity: By the end of 2021, the production capacity of the backboard reached 102 million square meters, and the fixed increase of 100 million square meters of BO backplate production capacity is expected to be digested smoothly. By optimizing the shipping structure at that time, the share of BO backboards is expected to rise to 60% this year. Expanding the layout of the adhesive film business, the film expansion project with an annual output of 120 million square meters is progressing normally. Currently, 4 lines have been put into operation and supplied in batches to customers, which is expected to bring new profit growth points to the company.

Investment suggestions: We expect the company to achieve revenue of 23.90/3171/4202 million yuan in 2022-2024; Guimu's net profit is 222/318/460 million yuan respectively, with growth rates of 80%/44%/45% respectively. The stock price on April 29 corresponds to the PE multiplier 18x/13x/9x. The company's photovoltaic packaging business is growing steadily, and the aluminum-plastic film business has fully benefited from the wave of localized substitution. Performance may have ushered in relatively rapid growth. It was covered for the first time, and was given a “recommended” rating.

Risk warning: downstream demand falls short of expectations, and raw material prices fluctuate.