Incident: The company achieved operating income of 5.307 billion yuan in 2022, an increase of 70.90% over the previous year, and net profit attributable to shareholders of listed companies of 50 million yuan, a decrease of 80.14% over the previous year. Non-net profit attributable to shareholders of listed companies deducted $28 million, a year-on-year decrease of 88.34%. In Q1 of 2023, the company achieved operating income of 1,351 million yuan, an increase of 9.98% over the previous year, net profit attributable to shareholders of listed companies was 23 million yuan, a year-on-year increase of -70.56%, and non-net profit attributable to shareholders of listed companies deducted 24 million yuan, a year-on-year decrease of 69.44%.

Fluctuations in raw material prices have an impact on the company's profitability. The company's revenue in 2022 increased 70.90% year-on-year compared to 2021, mainly due to the increase in the company's production capacity in 2022 and the sharp increase in sales volume of photovoltaic film products. Net profit attributable to shareholders of listed companies in 2022 decreased by 80.14% compared to 2021, mainly due to a sharp drop in the price of EVA resin raw materials in 2022, and the corresponding reduction in sales prices of plastic film products. The cost of raw materials fell slowly due to the slow decline in product sales margin due to the use of weighted average pricing; the corresponding increase in financial expenses increased a lot as the company's financing scale increased. Net profit attributable to shareholders of listed companies in Q23 fell 70.56% year-on-year, mainly due to an increase in the price of EVA resin, the main raw material for plastic film products during the reporting period, which led to a rise in costs. The time and extent of the corresponding increase in film prices was delayed, resulting in lower gross profit from current sales; financial expenses increased over the same period.

The production capacity of the company's adhesive film products has increased, supply capacity has increased, and its market share continues to increase. In 2022, the company continued to increase production capacity according to the established plan, and supply capacity was significantly enhanced. The company's new production capacity is mainly focused on adhesive films used in combination with double glass modules and N-type battery modules to optimize the company's product structure and enhance the company's ability to supply high-quality adhesive films. At the same time, the company gave full play to product innovation and excellent technical advantages, guaranteed the supply and service of core customers, and added high-quality customers. The company's photovoltaic film product shipments increased dramatically, and its market share continued to increase. Looking at the specific production and sales situation, the company produced 443 million square meters of photovoltaic film in 2022 and sold 435 million square meters. Production volume increased 76.61% over 2021, and sales volume increased 76.88% over 2021.

PV film production and sales have all increased rapidly compared to the same period in 2022.

Profitability improved month-on-month, and the company's profitability is expected to increase in 2023. On a quarterly basis, the company's 22Q4 net profit was -83 million yuan, the gross profit margin of sales was 2.95%, and the net sales margin was -7.09%; the 23Q1 company's net profit was 23 million yuan, the gross profit margin of sales was 6.26%, and the net sales margin was 1.68%. The company's profitability improved month-on-month. The risk of fluctuations in raw material prices was reduced in 23, the price of silicon materials upstream in the main photovoltaic industry chain dropped significantly, and the price pressure of modules on auxiliary materials will decrease. It is expected that the company's profitability will increase in 2023.

The company's R&D capabilities are outstanding, and product structure optimization will enhance the company's profitability and resilience to risks. The company has been leading the industry in launching new products such as anti-PID film, white multilayer co-extrusion film, etc., bringing value to customers while gaining room for continuous growth for the company. The company has become one of the top three photovoltaic film suppliers in the world. In the next two or three years, the company will rely on existing advantages, build on the photovoltaic film industry, strengthen quality and cost control, seize market opportunities from industry development and increased customer demand, quickly launch iterative products, and increase the company's sales scale and profitability. At the same time, the company is speeding up the market promotion of new products supporting materials for new energy vehicles, achieving industrialization and mass sales as soon as possible, bringing profitable growth points to the company, while reducing the company's risk in a single industry and enhancing the company's ability to develop new businesses.

Investment advice: As a major supplier in the film industry, the company's market share continues to increase as new production capacity is launched. As new products are gradually mass-produced, the company's shipping structure will be further optimized. The company's net profit for 23-25 is expected to be 5.14/795/1,059 million yuan, maintaining the “buy” rating.

Risk warning: risk of price fluctuations in the industrial chain, risk of changes in industry policies, risk of insufficient terminal demand.