The company released its mid-2023 report that during the reporting period, its revenue was 427 million yuan, down 14.43% from the same period last year, and the net profit returned to its mother was 53 million yuan, down 6.87% from the same period last year. Under the background of weak consumer electronics demand in the first half of the year, the company's overall performance was in line with expectations. From a product point of view, the company's revenue share of carbon fiber products has gradually increased, promoting profitability. Looking to the future, under the trend of lightweight consumer electronics, carbon fiber composites are expected to continue to infiltrate into notebook computers and accelerate the introduction of folding screen mobile phones and VR/MR head display devices. We are optimistic about the development of the company's carbon fiber business, and it is expected that the new products will expand rapidly in the future, leading to the rapid growth of revenue and net profit. According to Canalys statistics, global shipments of 2023H1 Lenovo Group Limited personal computers are 26.93 million units, down 24.3% from the same period last year. Under the background that the recovery in consumer electronics demand is not as expected, we adjust our company's EPS forecast for 2023-2025 to 2.01 pm 2.99max 4.06 yuan (the original forecast is 2.28 pm 3.30 pm 4.42 yuan), taking into account the valuation level of comparable companies. As well as the company's first-mover advantages and technical reserves in the field of consumer electronics carbon fiber structures, the company will be given 30 times PE in 2023, adjust the target stock price to 60 yuan (the original value of 68 yuan), and maintain the "buy" rating.

Business profile: the company released the 2023 mid-term report. During the reporting period, the revenue was 427 million yuan, down 14.43% from the same period last year, and the net profit was 53 million yuan, down 6.87% from the same period last year. From a quarterly point of view, Q2 realized revenue of 223 million yuan, down 15.34% from the same period last year, up 8.78% from the previous year, and realized a net profit of 28 million yuan from the same period last year, down 5.31% from the same period last year and an increase of 10.24% from the previous year. In terms of business, protective products, functional products and other businesses contribute 2.31,1.74 and 22 million yuan respectively, accounting for 54 per cent, 41 per cent and 5 per cent of revenue respectively.

Carbon fiber products gradually increase the proportion of revenue, promoting the company's profitability. According to the 2023 mid-term report, Hefei Shanxiu, a subsidiary of the company that produces carbon fiber backboards, achieved revenue of 78.5 million yuan during the reporting period, accounting for 18.3% of the company's total revenue, an increase in 5.5pct compared with 2022. The company's carbon fiber products have a higher gross profit margin than protective products and die-cutting products. The company's sales gross profit margin reached 30.78% in the first half of 2023, an increase in 2.91pct compared with the same period last year. The company's Wuhan production base and Hefei unrestrained production base are equipped with carbon fiber production capacity. As of June 30, 2023, the cumulative investment of the two bases accounted for 79.5% and 90.17% of the budget respectively, and the project progress was 98% and 97%, respectively. We believe that with the release of self-built capacity and the reduction of costs brought about by the advantage of scale. While the company realizes the self-production of the whole production process of carbon fiber board, the gross profit margin is expected to continue to increase.

Nuggets consumer electronics carbon fiber blue sea, the company has a broad space for growth. Carbon fiber has many advantages, such as low density, high strength, high modulus and so on. The composites made of high quality carbon fiber raw materials and good resin matrix have excellent mechanical properties and are the preferred materials for the thinning of consumer electronics. At present, carbon fiber composites have been used in the A side of notebook computers, mainly for the high-end market. Under the background of the gradual decline in the price of carbon fiber raw materials and the fact that manufacturers such as Everbright Tongchuang have gradually broken through the monopoly of well-known materials enterprises in Japan, we believe that the market space for laptop carbon fiber backplane is gradually opening up. Combined with Lenovo Group Limited's carbon fiber backplane permeability, we expect the laptop carbon fiber backplane market to exceed 6 billion yuan in 2025, corresponding to a compound growth rate of 75% from 2022 to 2025. Under the trend of lightweight, folding screen mobile phones and MR head display devices are also expected to accelerate the introduction of carbon fiber materials. The company has mastered the core technology of making carbon fiber structural parts, and notebook products are the first to break foreign monopoly. At present, the company's carbon fiber products are mainly used in the A side of Lenovo's high-end notebook models. With the development and design of customized notebook computers with customers, it is expected to gradually expand to D and other models. In addition to Lenovo, the company is also actively opening up other consumer electronics customers. In the field of folding screen, the company is actively developing carbon fiber brackets and flexible screen backboards, which are expected to be mass-produced on a large scale in the future.

Integrated services bind core customers, protection, die-cutting business is growing steadily. The overall pattern of consumer electronic protection and die-cutting products tends to be stable. from the perspective of longer-term industry evolution, suppliers in the industry are gradually changing from single manufacturing to integrated service manufacturing, which is expected to bring slow concentration of the pattern. The company serves large customers deeply, continues to improve the ability of its product line, and continues to increase its sales revenue to Lenovo Group Limited. According to the number of protective products sold by the company to Lenovo Group Limited, we estimate that the market share of the company's protective products in Lenovo Group Limited from 2019 to 2021 is 19%, 21% and 24% respectively. Looking to the future, under the background that the consumer electronics industry is expected to usher in a recovery, the development of company protection and die-cutting products mainly benefits from:

1) further increase the market share among major customers; 2) continue to expand new areas of customers; 3) promote bamboo and marine thermoplastic products to replace EPS, EPE, EPP and other traditional cushioning materials to enhance profitability.

Risk factors: carbon fiber product development is not as expected; market competition is intensified; exchange rate fluctuation risk; the recovery of the consumer electronics industry is not as expected; the risk of relative concentration of customers; new products, new application expansion is not as expected; capacity construction progress is not as expected.

Profit forecast, valuation and rating: Everbright Tongchuang is a scarce supplier of carbon fiber structures for consumer electronics in China. Under the guidance of the strategy of "deep service to customers", the company successfully launched carbon fiber backplane products in 2020 and passed Lenovo Group Limited certification, breaking the exclusive monopoly of well-known materials companies in Japan. Under the trend of lightweight consumer electronics, carbon fiber composites are expected to continue to infiltrate into laptops and accelerate the introduction of folding screen mobile phones and VR/MR head display devices. We are optimistic about the development of the company's carbon fiber business, and it is expected that the new products will expand rapidly in the future, leading to the rapid growth of revenue and net profit. According to Canalys statistics, 2023H1 Lenovo Group Limited shipped 26.93 million PCs worldwide, down 24.3% from the same period last year. Under the background that the recovery in consumer electronics demand was not as expected, we adjusted the company's EPS forecast for 2023-2025 to 2.01pm 2.99xpx 4.06 yuan respectively (the original forecast was 2.28ppm 3.30xpx 4.42 yuan). Taking into account the comparable company valuation level (comparable company Leiyi Zhizheng, Anjie Technology, Guangwei compound material, Zhongfu Condor Eagle 2023 Wind consensus expected average PE of about 25x), compared with comparable companies, the company Nuggets consumer electronics carbon fiber blue ocean, broader growth space, better competition pattern, we think it is worth a certain valuation premium. According to the PEG valuation method, comparable companies lead wisdom, Guangwei compound wood, Zhongfu Condor Eagle 2023-2025 Wind is expected to return home net profit compound growth rate of 24%, 20%, 35% respectively, corresponding to the 2023 PEG is 0.79,1.08,1.03, the average PEG is 0.97. We expect the compound growth rate of return net profit of Everbright Tongchuang from 2023 to 2025 to be 38%, conservatively 0.8 times PEG, corresponding to 30 times PE.

Taking into account the PE and PEG valuation method, we give the company 30 times PE in 2023, adjust the target price to 60 yuan (the original target price 68 yuan), and maintain the "buy" rating.