Incident: On April 27, 2023, the company released the 2022 annual report and the first quarter of 2023 report.

22-year results: In 2022, the company achieved revenue of 4.115 billion yuan, +36.39% year on year; realized net profit of 171 million yuan to the mother, +0.68% year on year; achieved net profit of 160 million yuan after deducting non-net profit, -3.14% year on year.

23Q1 results: Achieved revenue of 1,041 million yuan, -5.18% year on year; realized net profit of 33,189,900 yuan, -62.54% year on year; realized net profit of 3,0259 million yuan, minus 65.44% year on year.

Film shipments are growing rapidly, and profits are under phased pressure. In 2022, the company shipped 168 million square meters of adhesive film, an increase of 77.12% over the previous year, and achieved revenue of 2,112 million yuan, an increase of 85.66% over the previous year. The gross profit margin of the adhesive film business was 7.75%, down 5.20 pct from the previous year. It was mainly affected by large fluctuations in the price of the raw material EVA particles. During the period when the price of EVA particles fell, the company had to absorb the expensive inventory accumulated earlier. The mismatch between inventory costs and adhesive film prices put pressure on phased profits. With the steady recovery in EVA particle prices in '23, the company's profitability is expected to recover.

The adhesive film product matrix is complete. It was the first to successfully develop UV phototransfer film, which is expected to benefit from the release of N-type components. Aiming at the opportunity of change in new battery technology, the company used its R&D advantages to launch a series of adhesives for TopCon, heterojunction, and perovskite. For TopCon components, the company launched a packaging film product portfolio; for HJT components, the company was the first to successfully develop UV phototransfer adhesive films; for titanium ore components, thermoplastic packaging films were launched. The company has a complete matrix of adhesive film products, which is expected to benefit from the volume of N-type components.

The backboard business bottomed out, and continued to promote product structure optimization and cost reduction. In 2022, the company shipped 129 million square meters, a year-on-year decrease of 1.33%, and achieved revenue of 1,499 million yuan, an increase of 5.20% over the previous year. The gross margin was 15.35%, an increase of 2.94 pct over the previous year. Prices of raw materials PVDF resin and film rose sharply in 2022. On the one hand, the company reduced costs and increased efficiency through formulation technology adjustments, production process upgrades, supply chain optimization management, etc., to increase KpF backboard gross profit; on the other hand, it optimized the product structure to increase the sales share of low-cost PPF and FpF backboards, promoting the optimization and cost reduction of the company's backboard product structure, and the profit bottomed out in the backboard business.

The lithium battery business is developing rapidly, and the platform-based business potential is broad. Transportation power (including lithium batteries) materials have become the second largest performance growth point outside of the company's photovoltaic business, achieving revenue of 407 million yuan in 2022, an increase of 62.69% over the previous year. The company's battery PACK side panel insulation film, CCS hot press film, and battery blue film tape achieved the highest market share in the domestic market; it also completed research and development of new products such as FFC insulation film for automotive flat cables and cold plate cold film for water-cooled plates, which were successfully introduced to leading companies in the industry such as Ningde Shidai and BYD respectively, and are expected to be released in 2023. In addition, the company is actively deploying 3C communications, consumer electronics materials, and semiconductor materials, and diversified platform-based business development can be expected.

Investment suggestions: The company's plastic film and backboard business is progressing steadily, and the lithium battery business is developing rapidly. We expect the company's revenue for 2023-2025 to be 65.43, 90.69, and 11.705 billion yuan respectively, with corresponding growth rates of 59.0%, 38.6%, and 29.1% respectively; Guimu's net profit is 5.42, 836, and 1,094 million yuan respectively. The corresponding growth rates are 216.2%, 54.3%, 30.9%, based on the closing price on April 28. The corresponding PE for 2023-2025 will be 17X, 11X, 11X, 8X, maintaining the “Recommended” rating.

Risk warning: downstream installations fall short of expectations, raw material prices fluctuate, and industry competition increases risks.