Description of the event
On August 28, the company released its semi-annual report for 2023. The company achieved operating income of 2.56 billion yuan in the first half of 2023, a decrease of -26.4% over the same period of the previous year, and achieved net profit of 286.51 million yuan, a decrease of -96.0% over the same period of the previous year.
Incident reviews
The company is a BOPET leader, actively developing the “five major sectors” of the new materials business, and Q2 profits have improved month-on-month. The company is a leader deeply involved in the BOPET industry, and the market share of polyester film is number one in the world. The company is actively developing the “five major sectors” of new materials business, namely optical materials, new energy materials, energy-saving materials, information materials, and heat shrinkable materials. The recovery in domestic and foreign market demand fell short of expectations in the first half of the year, compounded by the release of industrial production capacity, increased market competition, large fluctuations in crude oil prices, and the decline in terminal demand and de-storage, which affected the company's performance. The company adjusted the product structure and accelerated the expansion of new products. Q2 profit improved month-on-month. Q1 gross margin was 3.7%, Q2 gross margin reached 13.1%, Q1 gross profit reached 202 million yuan, and Q2 net profit reached 26 million yuan, a marked improvement over the previous month. The company attaches great importance to R&D, and invested 110 million yuan in R&D in the first half of the year.
The company is actively developing new products, and composite copper foil is progressing smoothly. In terms of PET composite copper foil, the company set up a composite copper foil project in 2020, completed the installation and commissioning of the first water plating line in December, and sent samples to customers. Currently, it already has mass production capacity. It has received the first composite copper foil order from the entire market in June this year. It is estimated that there will be 50 million square meters of composite copper foil production capacity this year, and a production capacity of 500 million square meters is planned for the second phase. The gross margin of the new energy materials sector was 2.9% in Q1, and recovered to 14.6% in Q2. In terms of optical films, the company has increased the layout of MLCC release films. The first phase of 500 million square meters of production capacity and market development work is progressing steadily. It has passed verification by key domestic customers and formed batch supply. The gross margin of the Q1 optical film sector was 7.2%, and the Q2 gross margin was further restored to 13.3%.
The company is a leader in variable information materials, and PETG heat shrinkable film will free up production capacity. In terms of variable information materials, the company has a global market share of 52%. With in-depth cooperation with French companies such as ARMOR and Tiandi Digital, the gross margin reached 34.5% in the first half of the year. It is estimated that the downstream thermal transfer printing ribbon will grow at an average annual rate of about 5% globally and 7% domestically. In terms of heat-shrinkable materials, the company's gross margin reached 22% in the first half of the year, and the cost performance ratio of the company's own heat-shrinkable film masterbatch was outstanding. The company has fully cooperated with many domestic food leaders such as Dongpeng Special Drinks, Erie, and Nongfu Spring. Currently, the production capacity of PETG heat shrinkable film is 50,000 tons, and the production capacity is expected to reach 150,000 tons by the end of the year.
Currently, PETG is rapidly replacing PVC, and global demand for PETG is expected to continue to grow in the future, reaching US$2.09 billion in 2023.
Investment advice
It is estimated that the company's EPS for 2023-2025 will be 0.09\ 0.39\ 0.59, corresponding to the company's closing price of 9.56 yuan on September 1, the PE for 2023-2025 will be 108.8\ 25.0\ 16.5, respectively, and the net profit for 2023-2025 will be reduced to 1.0\ 4.68 billion yuan, respectively, and downgraded to a “buy-B” 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.