Incidents: In 2023, H1 achieved revenue of 972 million yuan, a year-on-year decrease of 10.98%; realized net profit of 24 million yuan, a year-on-year decrease of 82.53%; achieved net profit of 111 million yuan deducted from non-net profit, a year-on-year decrease of 90.96%. In 2023, Q2 achieved revenue of 546 million yuan, up 1.24% year on year, and 28.39% month on month; realized net profit of 112 million yuan, down 83.06% year on year and 4.08% month on month; achieved non-net profit deduction of 08 billion yuan, down 87.13% year on year, and 110.27% month on month.

Inventory removal was compounded by a recovery in the consumer market, and the Q2 deduction did not increase sharply month-on-month: H1 in 2023, influenced by macroeconomic trends, industry competition intensified. Prices of some of the company's polarizer products fell by varying degrees year-on-year, and product gross margin declined, leading to a decline in profitability. In 2023, H1's gross margin was 13.70%, year-on-year -8.90 pcts; net interest rate was 2.50%, year-on-year -10.54 pcts. In terms of expenses, H1's sales, management, R&D and financial expenses rates in 2023 were 0.58%/3.44%/6.13%/0.88%, respectively, and the year-on-year changes were -0.02/+0.66/+0.35/+1.72 pcts, respectively. Among them, the H1 financial expense ratio and absolute value increased significantly year-on-year, mainly due to a decrease in exchange earnings. Since Q2, as consumer market confidence has rebounded, market inventories have gradually been removed to a relatively reasonable level, demand in the downstream terminal consumer market has gradually picked up, the capacity utilization rate of the company's various product lines has shown an upward trend, order volume has increased rapidly, and non-net profit has increased dramatically month-on-month. Looking ahead to H2, the consumer electronics market is expected to continue to recover, bringing plenty of impetus to the company's business growth.

The expansion of polarizer production capacity is carried out in an orderly manner, and the integrated extension opens up long-term space: In 2022, the company's polarizer production line project with an annual production capacity of 6 million square meters in Putian was completed and entered the trial production stage. The production line is planned to be used to produce polarizers for automotive TFT displays. It is expected that the capacity utilization rate will be released and improved in an orderly manner this year, and the economy of related products will gradually be presented; it is expected that the Hefei Phase II ultra-wide polarizer production line project will enter the civil construction stage according to the plan. It is expected that the company's ultra-wide production line will be completed and put into operation by the end of this year. 30 million square meters TFT The production capacity of polarizers has significantly increased the company's supply capacity to domestic LCD panel manufacturers, thereby increasing the company's market share of large-size products and raising the level of localization of polarizers. In May 2023, the company signed a project investment contract with the Huanggang Municipal Government and cooperated with them to invest in the construction of an ultra-wide polarizer production line project and related supporting facilities locally. The overall project has built two 1,720 mm wide polarizer production lines and two ultra-wide 2520 mm polarizer production lines. The design capacity is 140 million square meters/year, with an estimated annual output value of 10 billion yuan. Furthermore, in order to further enhance the company's overall competitiveness and profitability and consolidate the company's position in the industry, the company expanded its business to the upstream of polarizers and invested in optical film and polymer production line projects for liquid crystal displays. In 2023, H1, the company signed a project investment contract with the Guangshui Municipal Government and cooperated with them to invest in the construction of an optical film and polymer production line project and related supporting facilities for LCD. The optical film design production capacity was 130 million square meters/year, and the polymer design production capacity was 60,000 tons/year, with an estimated annual output value of 2.3 billion yuan.

New car+VR products continue to break through, and the dual business engine enables profit improvement: According to RUNTO Technology (RUNTO) forecast data, VR shipments in 2023 will exceed 10 million for the first time, reaching 12.7 million units, an increase of 40% over the previous year. The company is an optical film supplier for mainstream VR products in the domestic market. It has accumulated relevant technical reserves in the field of optical film products for VR folding optical circuits. Currently, client certification for the company's VR products has basically been completed, and polarizers for VR headsets and folding optical circuits have been mass-produced and shipped. As the company continues to deepen its layout in the VR field, it is expected to fully benefit from the expansion of the VR industry in the future. In terms of in-vehicle business, according to the passenger vehicle market analysis report issued by the Passenger Vehicle Federation, the penetration rate of new energy passenger vehicles reached 27.6% in 2022, up 12.6 pcts from 2021. The penetration rate of new energy vehicles will still increase rapidly in the future. It is expected that the penetration rate of new energy passenger vehicles will reach 36% in 2023. With the continuous increase in the penetration rate of new energy vehicles, the market has put forward new requirements for the high temperature resistance of automotive products. Currently, the company's automotive iodine polarizers have stabilized at 95℃ x 500H, and have achieved mass production results in the rear loading vehicle market; the company's automotive dye products have also now been supplied in small quantities. As automotive products continue to break through and the penetration rate of new energy vehicles continues to rise, the company is expected to profit from vehicle business restoration and further open up room for long-term growth.

Maintaining a “buy” rating: The company is a leading manufacturer in the domestic polarizer field. In recent years, through continuous investment in new production lines, the company has increased production capacity, improved supply stability and product quality, and expanded product categories. It has been widely recognized by mainstream domestic LCD panel manufacturers and large module manufacturers, laying a solid foundation for the company to achieve long-term performance growth. Since 2022, the company's polarizer production capacity has been expanded in an orderly manner, the business has expanded to optical films and polymer polymers upstream of polarizers, and the automotive and VR businesses have achieved mass production and delivery. Looking forward to the future, as demand for consumer electronics rebounds, the new energy vehicle industry continues to develop, the company's polarizer production capacity continues to expand, and the integrated polarizer layout continues to advance, the company is expected to gradually restore its profitability and further increase its profit level. The company's net profit for 2023-2025 is estimated to be 303 million yuan, 463 million yuan, and 663 million yuan respectively, EPS is 1.74 yuan, 2.66 yuan, and 381 yuan respectively, and PE is 17X, 11X and 8X respectively.

Risk warning: Product single risk, raw material supply concentration and price fluctuation risk, risk of falling gross margin of main business, risk of macroeconomic fluctuations and policy changes.