Event

According to the semi-annual report released by the company, in the first half of 2020, the company realized revenue of 573 million yuan, down 7.5% from the same period last year; realized net profit of 91 million yuan, down 4.5% from the same period last year; realized net profit of 90 million yuan after deduction, an increase of 3.8% over the same period last year; realized net cash flow from operating activities of 166 million yuan, an increase of 63.1% over the same period last year; and realized basic earnings per share of 0.15 yuan, the same as the previous value. Q2 achieved revenue of 320 million yuan, down 0.6% from the same period last year; net profit of 48 million yuan, up 4.4% from the same period last year; and net profit of 47 million yuan after deduction, an increase of 9.3% over the same period last year.

Brief comment

Affected by the epidemic, the company's performance declined slightly in the first half of the year. Due to the epidemic situation in the first half of 2020, the downtime of infrastructure projects across the country was extended, and the downstream customers of the company started work late, affecting the company's main business. In the first quarter, micro-nano prism reflective materials were almost at a standstill in processing signage customers in some provinces, affecting the sales of road safety protection materials. Infrastructure gradually recovered after the two sessions, and the sales revenue of prism series reached 111 million in the first half of the year, down from the same period. The debugging of the company's optical film production line and the testing of PC/PMMA business have also been affected to varying degrees. However, crises and opportunities always coexist. During the epidemic, local governments issued policies to promote automobile consumption, which gradually warmed up the automobile market, and the epidemic blocked the global industrial chain and accelerated domestic substitution, which is also an opportunity for companies. In the second quarter, the company actively promoted cost control, adjusted marketing strategies, and increased market development. In the first half of the year, sales expenses decreased by 12.6% compared with the same period last year, management expenses decreased by 10.0%, and financial expenses decreased by 94.5% compared with the same period last year. (mainly part of the discount interest adjustment items). With the joint efforts of all employees, the company's overall operation in the first half of the year was sound, with revenue of 573 million yuan, down 7.5% from the same period last year, net profit of 91 million yuan, down 4.5% from the same period last year, and net profit of 90 million yuan after deduction, an increase of 3.8% over the same period last year.

The increment of the domestic market of reflective materials is increased, and the domestic substitution is accelerated. At present, the domestic epidemic situation has tended to be stable, and the downstream demand for reflective materials has recovered well. In order to stimulate domestic economic growth, domestic infrastructure construction has stepped into the "fast lane". Due to its excellent performance, the micro-prism reflective film will be more widely used in expressways, national highways and urban road traffic signs. as one of the company's core business, the incremental market demand of microprism reflective film will expand accordingly. At present, the domestic market size of micro-prism reflective materials is about 3 billion yuan, and the company's market share is about 10%. Nearly 90% of the market is still monopolized by foreign enterprises such as 3M Company, but the current overseas epidemic is still fermenting, blocking the global industrial chain supply of high-end reflective materials and other related products, which will accelerate the domestic substitution of such materials, followed by technological innovation and the localization of upstream core raw materials. At the same time, with the advantages of the company's own integrated business model, the market share will gradually increase. In terms of license plate film business, in order to stimulate the automobile market, the central and local governments have gradually introduced policies to promote automobile consumption. since March, the production and sales of new energy vehicles have shown a trend of restorative growth, and the commercial vehicle market began to recover in April. the passenger car market began to recover in May, and automobile production and sales reached a record high in June. The company's license plate film and semi-finished products recovered in April, and although affected by the first quarter, overall sales in the first half reached 125 million revenue, an increase of 17.1% over the same period last year. And after the introduction of the regulations requiring drivers to wear helmets in 2020, the integration of electric bicycles into license plate management has also accelerated the process. With the implementation of the license plate management policy of battery cars, the demand of the license plate film market will be enhanced, and the market space is huge in the future.

Aluminum plastic film, 5G mobile phone back panel and other new business prospects are promising. In terms of aluminum and plastic film business, at present, the company is mainly digital customers, last year began to gradually cut into middle and high-end customers, to strive for a breakthrough in the volume of middle and high-end customers. Due to the shortage of production capacity of DNP and other Japanese and South Korean aluminum-plastic film manufacturers, domestic lithium battery manufacturers are also constantly seeking cooperation from domestic aluminum-plastic film manufacturers to accelerate the domestic substitution of aluminum-plastic film business. In addition, the domestic energy storage battery soft package market has grown rapidly under the influence of the construction of the national power grid, the construction of communication base stations, and the popularity of household energy storage, especially shared power bicycles, adding new power to aluminum-plastic films. In 2020, the company added four new PC/PMMA composite production lines made in Germany, mainly aimed at the back panel of 5G mobile phones and automobile interiors to expand the market. In the first half of 2019, the company completed installation and commissioning of two PC/PMMA composite film production lines, one of which is currently specializing in the production of core raw materials for reflective materials, providing matching for the reflective material industry, reducing company costs and improving quality control. In order to maintain a high gross margin of reflective material products, the materials used in the back cover of 5G mobile phones have achieved small batch orders, but subsequent verification is needed. The optical film produced by the Huawei subsidiary has successfully entered the Hisense supply system, and the quantum dot film has also been supplied in small quantities by other quantum dot film applications. Warwick put forward the project demand for the composite film based on the matching of the whole industry last year. The composite film production line has been delayed by the entry and commissioning of foreign manufacturers affected by the epidemic, and some production capacity will be released in the second half of the year.

Strengthen the upgrading of R & D process and accumulate strength to prepare for development. In the first half of 2020, the company continued to accelerate the pace of independent research and development, with 5 new provincial R & D projects and 17 new patents. In the license plate film plate, the company tamped the later large-scale hot stamping process reform around the improvement of license plate film quality and the reform of license plate production process in the first half of the year, and carried out research and development of resin-based carbon belt for printing model plates; at the same time, participate in the design of license plate style and complete the transformation of license plate semi-finished automatic grabbing equipment to cope with the opportunities for the implementation of new policies in the second half of the year and in the future. In the micro-prism reflective film plate, the company in the first half of the year around the prism project coating backglue, printing equipment transformation, improve production speed and efficiency, in the case of ensuring stable quality, with faster service, personalized customization advantages, supplemented by the company's production capacity planning and process, equipment improvement, will rapidly increase the market share in the second half of the year. In the aluminum-plastic film plate, the company innovated and improved the production process and equipment, effectively improved the product yield, and raised the gross profit margin of aluminum-plastic film to 22.8% in the first half of the year.

Profit forecast and valuation: the return net profit of the company in 2020, 2021 and 2022 is 226 million yuan (266 million yuan), 298 million yuan (379 million yuan) and 392 million yuan (469 million yuan) respectively, the EPS is 0.36,0.48 and 0.63 yuan respectively, and the PE is 24.4x, 18.5x and 14.1x respectively. The compound growth rate of the company's homing net profit from 2020 to 2022 was 31.7%. Based on the company's 2021 profit forecast, the company was given 30 times PE, lowered its target price to 14.4 yuan per share, and maintained its buy rating.

Risk hint: the project production is not as expected and the downstream demand is not as expected.