Description of the event
On June 21, the company issued an announcement, and the company signed the first order for PET composite copper foil. The company completed the installation of the first composite copper foil equipment in December 2022. Samples of the products were sent to visitors. After repeated testing and verification by customers, the company recently received the first product order.
Incident reviews
The company is a BOPET leader and is actively developing the “five major sectors” of the new materials business. The company is a leader in the BOPET industry, and polyester film has the highest market share in the world. The company actively develops the “five major sectors” of new materials business: optical materials, new energy materials, variable information materials, heat shrinkable materials, and energy-saving window film materials, forming a “masterbat+substrate+membrane material” integrated business model for the whole industry chain. The company is expected to ship 600,000 tons this year.
The new energy materials sector is actively developing and will have a production capacity of 50 million square meters of composite copper foil this year. The company's new energy materials business is mainly widely used in negative electrode fluid collection and downstream photovoltaic power generation. In terms of PET composite copper foil, the company set up a PET composite copper foil project in August 2020, began sending samples to downstream customers in the second half of 2022, completed the installation and commissioning of the first water plating line in December, and already has mass production capacity. It has recently received the first composite copper foil order from all markets. It is estimated that there will be 50 million square meters of composite copper foil production capacity this year, with a production capacity of 500 million square meters planned for the second phase. The company's order is the company's new breakthrough in anode fluid collection, and I am optimistic about the company's first-mover advantage in the field of composite fluid collection. The gross margin of the new energy materials sector recovered to 2.9% in Q1, and is expected to recover above 15% in Q2.
The optical film has been laid out for ten years, and customer expansion has been smooth. Further recovery in Q2 gross margin is expected. The company's optical film business has a global market share of 20% and continues to expand customers at home and abroad. The company is one of Samsung's six core suppliers and has expanded customers such as TCL, Hisense, and Sony in recent years. In terms of MLCC release films, the company's MLCC production capacity is 500 million square meters in the first phase, and it became a supplier to Sanhuan Group in January this year. The gross margin of the Q1 optical materials sector recovered to 7.2%, and the Q2 margin is expected to recover further.
The company's variable information materials have a high market share and high gross profit margin, and heat-shrinkable film replaces PVC to rapidly advance the market. In terms of variable information materials, the company accounts for 52% of the global market. Through in-depth cooperation with French companies such as ARMOR and Tiandi Digital, the Q1 gross margin reached 36%. In terms of heat-shrinkable materials, the cost effectiveness of the company's own heat-shrinkable film masterbatch is outstanding. The current production capacity of 50,000 tons of PETG heat-shrinkable film is expected to reach 150,000 tons by the end of the year. The company is fully cooperating with Dongpeng Drink, Erie, Nongfu Spring and other domestic food leaders. Currently, PETG is rapidly replacing PVC, and demand for PETG is expected to continue to grow in the future.
The company's 2023Q1 performance is under pressure, and the price and profitability of Q2 polyester functional film products are expected to pick up.
Polyester film production capacity expanded last year and the beginning of this year, industry competition intensified. Along with the rise in raw material prices, the decline in demand, the contradiction between supply and demand in the market increased, and efficiency declined. The gross margin of polyester film in Q1 was -16.5%, and the gross margin of the main business was 3.4%. It will still take time for terminal consumption to recover in 2023. We believe that with the gradual recovery of the downstream consumer electronics industry and the improvement of photovoltaic demand, the price and profitability of the company's functional polyester film products are expected to pick up from Q2. We are optimistic about the company's subsequent profit recovery.
Investment advice
The company's 2023-2025 EPS is expected to be 0.50\ 0.77\ 0.91 respectively, corresponding to the company's closing price of 11.42 yuan on June 29, and the 2023-2025 PE of 22.8\ 14.9\ 12.5 respectively. The first coverage will be given a “buy-A” rating.
Risk warning
Market demand for composite fluid collectors fell short of expectations; downstream consumer electronics recovery fell short of expectations; raw material prices fluctuated greatly; product development fell short of expectations; downstream demand fell short of expectations; customer expansion fell short of expectations.