The company released three quarterly reports for 2023, and the results were in line with expectations. The company's 1-3Q2023 realized operating income of 3.087 billion yuan (yoy+7.07%), net profit of 296 million yuan (yoy+13.62%), net profit of 280 million yuan (yoy+12.23%), overall sales margin increased by 0.6 pct to 23.89%, and sales expenses, management expenses and R & D expenses increased by 2.90%, 7.70%, 6.83% to 1.25,1.45 and 121 million yuan respectively compared with the same period last year. Mainly due to the increase in staff wages and salaries, the increase in amortization of employee stock ownership plans, the increase in R & D investment and the increase in direct material investment, the financial expenses were 9.82 million yuan, compared with-9.89 million yuan in the same period last year, mainly due to the decrease in exchange earnings. The results are in line with expectations. Among them, 3Q23 realized operating income of 1.006 billion yuan (YoY+2.30%,QoQ+0.33%) and net profit of 72 million yuan (YoY-7.33%,QoQ-29.93%). 3Q23 annual single-quarter sales gross profit decreased 3.81 and 4.41pct to 20.53% respectively compared with the same period last year. The main reason for 3Q23's quarterly revenue growth compared with the previous quarter is that the company's R & D, procurement and sales are highly linked, reducing costs, ensuring supply and seizing market share, and the sales volume of photovoltaic silicone and other core products have increased, and the market share has further increased. The reason for the decline in net profit compared with the previous quarter is due to the persistently low prices of silicone and polyurethane, the main raw materials, and the decline in the price and profit of photovoltaic products.

Photovoltaic glue maintains the growth momentum, but the low level of raw materials is a drag on product prices, increasingly fierce competition in the industry, month-on-month decline in profitability, and continuous optimization of solar cell back film product structure. Benefiting from the high growth rate of downstream photovoltaic, the company uses the combination of silica gel and backplane to maintain a high share of supply to industry head customers, transparent grid backplane quickly achieves high volume at customers, newly released water blocking products have sent samples for a number of benchmarking customers, 3Q23 annual capital reduction and protection for seizing the market, sales volume continues to grow, market share further increases, but industry competition intensifies, and the price of photovoltaic products decreases. Gross profit margin fell month-on-month. According to the company's semi-annual report, the revenue of 1H2023's renewable energy business increased by 3% to 1.16 billion yuan year-on-year, and the gross profit margin increased by 2.5pct to 22.99%, of which photovoltaic silicone revenue increased by about 18%. In the field of electronic and electrical business, the company realizes batch introduction of new customers, cultivation of high-value products, layout increment business, PUR hot melt adhesive, three anti-paint, epoxy bottom filling adhesive, etc., in consumer electronics, chip packaging, automotive electronics and other fields of benchmarking customers. More new production capacity has been put into the raw material silicone industry, and prices continue to decline, which has dragged down the company's product prices, resulting in a decline in gross profit margin. According to Zhuochuang Information silicone product data, the average annual silicone price of 3Q23 is 13445 yuan / ton, down 7% from the previous month and 32% from the same period last year.

From 1 to 3Q23, the business of new energy vehicles and power batteries continued to develop, the export business grew steadily, R & D and innovation continued to increase, and the endogenous power of the enterprise was increased. The company's new energy vehicle and power battery business continues to focus on TOP customers in the industry, structural adhesive products strengthen cost control on the basis of batch guarantee and supply, profitability is further improved, and batch orders for negative rubber products are landed; passenger car business pays close attention to benchmarking customers to achieve switching supply and new production line introduction of supply, sales increased significantly compared with the same period last year.

In 1H2023 year, the company's key scientific research projects were carried out in an orderly manner, butyl glue, water blocking adhesive, PUR hot melt adhesive, epoxy bottom filling adhesive, UV adhesive, chip binding adhesive, lithium anode adhesive and other products have achieved technological breakthroughs or market volume. In 1H2023, the company has an annual output of 30,000 tons of photovoltaic silicone sealant production line, 10,000 tons of polyurethane production line for lithium battery, 15000 tons of lithium battery electrode adhesive production line, and an annual production line of 36 million square meters of solar cell back film has been completed and put into production.

By the end of 3Q23, the project under construction decreased by 143 million yuan to 465 million yuan compared with the end of 1H23, and the fixed assets increased by 191 million yuan to 1.194 billion yuan compared with the end of 1H23.

Investment analysis opinion: with the continuous growth of demand in the field of photovoltaic adhesive, the deepening of import substitution, the upgrading of product structure, and the continuous breakthroughs in the field of 5G communications and new energy vehicle power batteries, the performance of the company is expected to continue to grow. Due to the fierce competition for photovoltaic glue and the drop in raw materials as a drag on product prices, we lowered the company's 2023-2025 net profit forecast for 3.36,4.16,501 million yuan (originally 3.82,4.93,567 million yuan), the corresponding EPS is 0.60,0.74,0.90 yuan, PE is 17X, 14x, 11x, optimistic about the company's continuous volume in the new high-end field in the future, so it maintains the "holding" rating.

Risk tips: 1. Raw material prices fluctuated sharply and gross profit margin fell; 2. Downstream demand slows down, the volume of high-end products and applications is lower than expected; 3. The expansion progress of the new project is lower than expected; 4. The company received a letter of concern issued by the Shenzhen Stock Exchange on March 20, 2023, which was mainly related to the "suggestive announcement on the compulsory measures taken by the concerted action of the company's controlling shareholders". The company replied that it had obtained the detention notice and arrest notice provided by Mr. Zhang Feng's family. Mr. Zhang Feng was suspected of manipulating the securities and futures markets. The Hefei Public Security Bureau has taken criminal compulsory measures in accordance with Article 82 of the Criminal procedure Law of the people's Republic of China, but the company has no other further information. Investors are respectfully invited to pay attention to the relevant risks.