Core views

A leading company in environmentally friendly adhesive materials, and its revenue scale is rising steadily. The company has been deeply involved in environmentally friendly hot melt adhesive materials for more than 20 years and is a leading producer of environmentally friendly adhesive materials in China. In 2021, the company's market share of environmentally friendly hot melt adhesive materials reached 40%. With the advancement of the “double carbon” policy in the future, the market share of green and environmentally friendly adhesives is expected to increase, which will drive the company's market share to further increase. In recent years, driven by the expansion of the company's production capacity and downstream demand, the company's revenue has increased year by year. In 2018-2021, the company's revenue increased from 561 million yuan to 1,068 million yuan, with an average compound annual growth rate of 23.9%, of which 2021 increased 52.7% year on year; revenue for the first three quarters of 2022 was 1.07 billion yuan, an increase of 45.4% year on year.

The boom in the photovoltaic industry is rising, compounded by the company's active expansion of production, and room for performance growth continues to open up.

In 2019-2022, China's new PV installed capacity increased from 26.52 GW to 87.41 GW, with an average compound annual growth rate of 48.82%. The continuous increase in the new installed capacity of photovoltaics has led to a steady increase in the production of photovoltaic modules. In 2018-2022, China's PV module production increased from 84.3 GW to 288.7 GW, with an average compound annual growth rate of 36%. Photovoltaic packaging film is one of the core components of photovoltaic modules. In 2018-2022, China's demand for photovoltaic film increased from 9.3 billion square meters to 3.18 billion square meters.

The company continues to expand production capacity, and the company's production and sales of photovoltaic packaging films have also increased dramatically. The production and sales volume in the first three quarters of 2022 were 450815 million square meters and 43.844 million square meters respectively, up 151.87% and 147.62% respectively over the previous year. In 2022, the company's PV packaging film sales revenue was about 729 million yuan, an increase of about 125% over the previous year. The company seizes industry opportunities and actively expands photovoltaic film production capacity.

The company expects the effective production capacity of photovoltaic packaging films to reach about 160 million square meters/year in 2022 and 350 million square meters/year in 2023. In the future, as the company's production capacity is released one after another, it is expected to open up room for performance growth.

The company is actively expanding production and integrating the electronic adhesive sector to implement domestic substitution. The company's electronic adhesive products are gradually being replaced by imports. The company is actively expanding customers in the field of electronic adhesives. In 2021, it reached cooperation with customers such as Huichuan Technology, Bull Group, Fangtai Group, and Midea Group, while deepening cooperation with Watson Electric. The company is promoting the construction of electronic adhesive production capacity. The production capacity will increase from 830 tons/year to 1,730 tons/year, which is expected to contribute to an increase in performance in the future. At the same time, the company is actively integrating the electronic adhesive business segment, and the synergy effect is expected to be further strengthened.

Investment advice

Based on the company's layout in the field of photovoltaic packaging film and electronic adhesive, it is expected that future performance growth will continue to open up. We expect the company's revenue for 2022/2023/2024 to be 1,409/29.64/5.55 billion yuan respectively, net profit of -0.53/2.09/471 million yuan respectively, and the corresponding EPS of -0.12/0.48/1.09 yuan/share respectively, based on the closing price of 11.07 yuan on April 26, 2023, and the corresponding PE for 2023/2024 is 22.88/10.16 times respectively. Combined with the high boom in the photovoltaic packaging film industry, I am optimistic about the company's future development. First coverage, giving a “recommended” rating.

Risk warning

Raw material prices fluctuate abnormally, downstream demand falls short of expectations, environmental risks, etc.