Description of the event

The company released its 2023 mid-year report: revenue for the first half of the year was 2,706 million, a decrease of 2.06%; net attributable profit of 74 million, a decrease of 48.56%; net profit of non-attributable net profit of 118 million yuan was reduced by 58.75%.

Equivalent to Q2, we achieved revenue of 1,468 million yuan in a single quarter, an increase of 5.88%; net attributable profit of 45 million, a decrease of 62.23%; and net profit of non-attributable net profit of 36 million yuan, an increase of 30.48%.

Incident comments

Operations in the first half of the year were under pressure. The company achieved revenue of 2.706 billion dollars in the first half of the year, down 2.06%. It is expected that the revenue of new materials and LCD modules in the first half of the year will drop slightly (the revenue of the subsidiary Shenzhen Guoxian will drop 2.6%, Zhongheng New Materials will drop 5.5%, and Kaisheng Yingcai will drop 3.7%). From January to June 2023, China's tablet exports were 54.12 million units, down 13.8% year on year, and the company's module performance was better than the industry. The gross profit margin for the current period was 13.4%, down 3.8 pcts from the previous year. Among them, the gross margin of the new materials sector fell 7.1 pct to 21.0%, and the new model showed a drop of 0.2 pct to 7.9%. The rate for the period decreased by 1.4 pct to 11.3% year on year. Among them, the management rate increased by 1.2 pct (due to depreciation of the disposal production line and increased accumulated amortization), R&D and finance rates decreased by 1.3 and 1.4 pct; other income decreased by 26.1 million to 47.91 million, mainly due to a decrease in current government subsidies; finally, the net interest rate on attribution was 2.7%, a year-on-year decrease of 2.5 pct.

Q2 Quarterly revenue resumed growth. Q2 achieved a 5.88% increase in revenue in a single quarter, and the growth rate was positive. The Q2 gross profit margin was 13.8%, down 4.9 pct, or mainly affected by the decline in the zirconium product boom; the rate for the period was 9.6%, down 3.8 pct. Among them, R&D and finance rates fell 1.9 pct, 2.5 pcts, and management fees increased by 0.7 pct. Other income decreased by 47.05 million to 13.88 million year-on-year, mainly due to a decrease in current government subsidies; in the end, the net interest rate attributable to it was achieved at 3.0%, a year-on-year decrease of 5.5 pct.

UTG is leading domestic substitution, and new technology continues to be developed. The first phase of the company's UTG project was put into operation in July 2021 and hosts the Bengbu Optoelectronics ultra-thin high-aluminum UTG original film production line. It is a unique domestic ultra-thin flexible glass industry chain covering “high-strength glass - extremely thin and thin - high-precision post-processing” in China. At the same time, it is also developing one-time molding technology for ultra-thin flexible glass sheets. The company plans to build a test line for molding ultra-thin flexible glass once, with the goal of pulling 30-70 micron ultra-thin glass. Currently, the main production equipment has been tendered. In addition, the company is also developing new technologies such as screen-oriented sound generation and glass-based Mini-Led backlighting.

The category of new materials continues to expand. The company is rapidly releasing new materials in the field of electronic semiconductors, such as nano barium titanate, rare earth polishing powder, and spherical materials. As of 2022, there is a spherical silicon production capacity of 8,400 tons, and it is expected that the production capacity under construction will reach 14,000 to 15,000 tons after production is put into operation; in addition, the company's high-purity synthetic silica 5000 ton mass production line is progressing steadily, preparing spherical nano-grade silicon dioxide powder materials with low radiation and micron grade quartz particles. Furthermore, the company has completed a 100% equity acquisition of Taihu Quartz, a subsidiary of pure high-purity sand, and the 3+1 strategy continues to advance.

Investment suggestions: Continue to be optimistic about the company's new materials business category expansion and UTG cover volume, and consider purified quartz sand to achieve performance. The net profit attributable to 2023 and 2024 is expected to be 185 million to 270 million dollars, corresponding to 54 and 37 times PE, and maintain the purchase rating.

Risk warning

1. The expansion of new products fell short of expectations;

2. Market competition intensifies.