Based on hot melt adhesives, we develop four major businesses. The company has been deeply involved in the hot melt adhesive industry for more than 20 years. Relying on the advantages of hot melt bonding technology, the company continues to expand the industrial chain. It has successively entered the photovoltaic film, wall covering, and electronic adhesive business. At present, it has entered the stage of collaborative development of four businesses. With the addition of 450 million square meters/year production capacity for photovoltaic film, the company is expected to rely on the film business to achieve leaps and bounds in the future.

The PV boom continues, and the company seizes the opportunity. Demand for photovoltaic film is estimated to be around 4.4 billion square meters in '23, an increase of 44% over the same period. Structurally, considering the tight supply of POE particles throughout the year, the annual demand for EVA/POE/EPE film was 25/11/8 billion square meters, respectively, an increase of 31.6%/83.3%/33.3%. On the shipping side, with the completion of the construction of additional production capacity, the company's production capacity is expected to reach 35/51 million square meters in 23-24. It is expected that the company will ensure the continuous digestion of the new production capacity through various methods such as particle guarantee and supply, product layout, and customer cooperation, and the market share is expected to increase to 10%. On the profit side, based on deep technological accumulation, the company was able to achieve better profitability than its peers. Combined with the tight overall supply of particles in 23-24, particle prices are expected to rise steadily throughout the year, and film profits will rebound throughout the year. It is expected that the company's profit elasticity may be significantly superior to that of the shipping side.

Hot melt adhesives are growing steadily and new businesses have sprung up. Hot melt adhesives: The company relies on technical advantages to continue to cultivate the middle and high-end hot melt adhesive markets and continuously increase the added value of hot melt adhesive products. In the future, revenue growth is expected to continue to be faster than the industry as a whole, and market share will continue to rise. Electronic glue: Relying on the technology system accumulated over many years by subsidiaries such as Xinyou New Materials, the company continues to deepen product innovation and customer expansion in the fields of optical modules, acoustic modules, and electronic components. It is expected to gradually achieve localized replacement of imported electronic adhesives and achieve a revenue growth rate of more than 30% in the next few years. Wall covering: As the downstream economy recovers and consumption upgrades, the domestic wall covering market is expected to gradually pick up. The company will rely on its deep technical heritage in the field of hot-melt adhesive materials to continuously develop wall covering products with better performance, superimposing continuous polishing on the channel side and brand side, which is expected to achieve a continuous breakthrough in the wall covering business.

Profit forecast: As a second-tier adhesive film manufacturer, the company is in the stage of rapidly launching production capacity and developing customers. Combined with its excellent cost control capabilities, both shipments and profits are expected to increase further.

We expect the company to achieve net profit of -0.49/ 2.76/ 413 million yuan in 2022-2024, and the corresponding PE is -/ 20/ 13 times. PE was given a valuation of 30 times the profit of 2023, with a target price of 19.1 yuan, maintaining the “buy” rating.

Risk warning: PV installations fall short of expectations, profit forecasts and valuation judgments fall short of expectations