2020H1's net profit fell 34.1% year on year, maintaining a strong “increase in holdings” rating. New Materials released its 2020 interim report on August 27. The company's 2020H1 achieved revenue of 373 million yuan, a year-on-year decrease of 13.2%, and net profit of 58 million yuan, a year-on-year decrease of 34.1%, corresponding to an EPS of 0.11 yuan. Among them, 2020 Q2 achieved revenue of 195 million yuan, a year-on-year decrease of 20.7%, and net profit of 32 million yuan, a year-on-year decrease of 42.1%. Short-term demand for downstream 3C electronics has been suppressed due to the impact of the epidemic, and we believe it is expected to gradually pick up in the future. We expect the company's EPS to be 0.38/0.46/0.54 yuan respectively in 2020-2022, maintaining the “increase in holdings” rating.
The main business declined, and the cost rate increased during the period
The company's PCB photoinitiators achieved revenue of 98 million yuan, down 7% year on year, gross margin fell 4.8 pct to 33.6% year on year; LCD photoresist photoinitiators achieved revenue of 188 million yuan, down 8% year on year, gross margin increased 0.7 pct to 57.4% year on year; other photoinitiators achieved revenue of 109 million yuan, down 4% year on year, and gross margin fell 12.2 pct to 31.1% year on year. The company's comprehensive gross margin fell 2.1 pct to 37.1% year on year, and the sales/management/R&D/financial expenses ratio changed 0.1/1.1/2.0/-0.6 pct year on year to 3.6%/8.8%/7.3%/0.2%, respectively. The decline in the financial expense ratio was mainly due to exchange rate changes in the current period, exchange rate losses in the same period last year, and a decrease in interest expenses due to lower interest rates on bank loans.
The development prospects of the OLED materials business are good
According to DSCC's forecast, global OLED panel shipments will reach 9 million square meters in 2019, an increase of 35% over the previous year. The corresponding market size for OLED materials is about 10 billion yuan, and domestic demand for OLED materials is also expected to grow rapidly. The subsidiary Qiangli Yulei achieved mass production of OLED sublimation materials in September 2017, and has now entered the R&D lines and production lines of major domestic OLED panel manufacturers. On the other hand, the company is currently constructing “next-generation flat panel displays and integrated circuit materials with an annual output of 3070 tons”. The interim report revealed that as of the end of 2020 Q2, the investment progress was 47%, and it is expected that the company's OLED business scale will be further expanded after completion.
Build production capacity for environmentally friendly photoinitiators and expand industrial layout
In October 2019, the company announced that it would invest 1.09 billion yuan to build “12,000 tons of environmentally friendly photoinitiators, 50,000 tons of UV-LED high-performance resin and other related raw materials and pilot plant projects”, and announced in April 2020 that it would issue convertible bonds to raise 900 million yuan for the construction of the above projects and supplementary working capital. The company expects the construction period of the project to be 36 months, the payback period is 9 years, and the profit after production tax will be 110 million yuan. After the project is completed and put into operation, we believe it will help the company expand new business growth points.
Maintain the “increase in holdings” rating
We maintain the company's EPS forecast for 2020-2022 at 0.38/0.46/0.54 yuan, respectively. Combined with comparable company valuation levels (2021 Wind's unanimous expectation of 43 times PE), we gave the company 43 times PE in 2021, corresponding to a target price of 19.78 yuan (previous value of 15.96-16.72 yuan), maintaining the “increase in holdings” rating.
Risk warning: The risk of core technology being compromised and new business development falling short of expectations.
