Items:

According to the 18-year annual report released by the company, during the reporting period, the company achieved operating income of 3.214 billion yuan, an increase of 55.67% over the same period last year, and a net profit of 301 million yuan belonging to shareholders of listed companies, an increase of 74.53% over the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 235 million yuan, an increase of 91.02% over the same period last year.

The company's 18-year profit distribution plan is: cash dividend of 0.27 yuan (including tax) for every 10 shares.

Peace viewpoint:

The pain of product structure adjustment, the decline of comprehensive gross profit margin: the company's 18Q4 achieved operating income of 685 million yuan, down 33.35% from 18Q3. The decline in revenue led to a decline in the company's 18Q4 comprehensive gross profit margin and an abnormally high expense rate. The company's 18Q4 comprehensive gross profit margin is only 16.78%, which is the lowest level of the year (18Q1/Q2/Q3 comprehensive gross profit margin is 29.40% and 26.47% respectively); 18Q4 comprehensive expense rate reaches 21.66%. The company's 18-year functional materials business achieved an operating income of 2.185 billion yuan. Excluding Qianhong Electronics's contribution of 1.141 billion yuan, the company's original functional materials business, such as Changzhou Phase I / Phase II / Japan, contributed a total of 1.044 billion yuan, down 9.3% from the same period last year. What is noteworthy is that the company has significantly improved the profitability of its subsidiaries by adjusting the product structure of the first phase of Changzhou. In 18 years, Changzhou Xinlun achieved operating income of 610 million yuan, net profit margin of 23.41%; of which 18H1 realized operating income of 314 million yuan, net profit margin of 19.87%; that is, while still having to bear the depreciation of low-end production lines without corresponding income, the net profit margin of the first phase of 18H2 reached 27.16%, an increase of 7.29pct compared with 18H1. The company's functional membrane high-end customer business profitability is outstanding.

The Changzhou plant of aluminum and plastic film is still in the customer development period: the subsidiary Nylon compound material contributed 341 million yuan in 18 years' income, realized a net profit of 12.5073 million yuan, and a net profit margin of 3.67%, which was 3.39pct lower than that of 18H1; of which 18H2 New Fiber Composite material achieved an income of 147 million yuan, 23.86% less than 18H1, and was in a state of loss. We believe that the reason for the 18H2 loss in the company's aluminum and plastic film business is the increase in depreciation brought about by the launch of the new production line, as well as the overall decline in product prices. In 19 years, the company has signed a supply agreement with Funeng Technology, and after 6 months of sample delivery testing and capacity climbing, the Changzhou production line is expected to receive bulk consumer soft package lithium electricity orders in 19 years, effectively increasing the comprehensive operating rate of aluminum and plastic film business. Changzhou production line is expected to contribute to its performance in the first half of 19.

Investment suggestion: taking into account the possible impairment of fixed assets in the low-end production line of Changzhou Phase I after the adjustment of the company's product structure, and the negative impact of the increase in the initial expense rate of the Changzhou Phase III project and the PBO project on the company's profitability, we downgrade the company's profit forecast. It is estimated that the company's annual EPS in 19-20-21 will be 0.29mp 0.37exp 0.45 yuan respectively (the previous value in 1920 is 0.58pm 0.76 yuan respectively) Corresponding to the closing price of April 22, PE is 23.8 times that of 36.4 Universe 29.1. We believe that after the completion of the adjustment of the company's product structure and the increase in the start-up rate of the new production line, the comprehensive expense rate will be effectively controlled, and the profitability of aluminum-plastic film and optical film projects will pick up significantly, so the company's "recommended" rating will be maintained.

Risk tips: 1) aluminum-plastic film certification risk, if the company's Changzhou phase II aluminum-plastic film production capacity is not as expected, it will affect the company's revenue growth and profit margin level; 2) Qianhong electronic performance is lower than expected risk. If Qianhong Electronics fails to fulfill its performance commitment due to the sales volume of end customers, it will cause the risk of goodwill impairment. 3) the risk of business development of high-end electronic functional materials. Apple Inc is an important customer of the company's high-end electronic functional materials. If Apple Inc's follow-up production and marketing continues to be lower than expected or the company fails to maintain matching equipment in the subsequent product replacement, it will affect the average price and profit level of the company's functional membrane materials.