Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 3,087 billion yuan, an increase of 7.1% over the previous year, and realized net profit of 296 million yuan, an increase of 13.6% over the previous year. In 2023, Q3 achieved revenue of 1,006 billion yuan, an increase of 2.3% over the previous year, an increase of 0.3% over the previous year; realized net profit of 72 million yuan, a decrease of 7.3% over the previous year, a decrease of 29.9% over the previous year; and realized net profit after deduction of 69 million yuan, a decrease of 4.7% over the previous year and a decrease of 28.4% over the previous year.

Prices of major raw materials were pulled back, and prices of products such as photovoltaic silicone were adjusted accordingly, and 23Q3 performance declined month-on-month.

In 23Q3, the price of silicone, the company's main raw material, pulled back, and the prices of products such as photovoltaic silicone were adjusted to a certain extent. According to Baichuan Yingfu data, the average market price of 107 silicone rubber in Q3 was 14,200 yuan/ton in Q3, -18.7% year-on-year and -7.3% month-on-month. In Q3 '23, the company's gross sales margin was 20.5%, down 4.4pct from the previous month.

In terms of expense ratio, in Q3 of '23, the company's sales, management, and financial expense rates were 4.3%, 4.7%, and 0.6% respectively, with changes of -0.2, -0.4, and +1.5pct, respectively, from month to month. The increase in financial expenses was mainly due to a decrease in exchange earnings.

Photovoltaic silicon, lithium battery adhesives, chip packaging adhesives, and photovoltaic backplane businesses have blossomed, and the leading position in the adhesive industry is stable. In terms of the photovoltaic silicone business, the company's first-supply/two-supply position as a leading photovoltaic customer is stable. In the first half of '23, sales of second-tier and third-tier customers more than doubled, and the market share remained stable at around 45%. In the lithium battery rubber sector, with the implementation of new production capacity, stable batch supply of structural adhesive products has been guaranteed. Bulk supply of anode adhesive PAA products began in the first half of '23, and SBR products won bids from leading customers, laying the foundation for continued steady growth in the overall business in the later stages. In terms of chip packaging adhesives, the company's current products include chip four-corner binding adhesive, chip bottom filler, SIP shielding silver paste, etc., which have been supplied and applied in batches to benchmark customers in communication electronics, consumer electronics, automotive electronics and other industries. In terms of the photovoltaic backboard business, the company's main transparent grid backboard is fast to load and has a high gross margin. At the same time, it has successfully developed a high-barrier transparent backboard, which has achieved ultra-low water vapor transmission rate and is suitable for photovoltaic n-type modules. The product has been sampled and tested by customers. The company began investing in the construction of the “Huitian Vietnam Transparent Grid Backboard Project with an Annual Output of 26 million square meters” in Vietnam in August '23. It is expected that the corresponding production capacity will be gradually completed and implemented in 24 years.

Actively expand the production of adhesives in the fields of lithium batteries, photovoltaics, etc., to ensure business development. By the end of June '23, the company's production line for photovoltaic silicone sealant with an annual output of 30,000 tons, a polyurethane adhesive production line for lithium batteries with an annual output of 10,000 tons, a lithium battery electrode adhesive production line with an annual output of 15,000 tons, and a solar cell back film production line with an annual output of 36 million square meters had been completed and put into operation, effectively improving the company's supply capacity to customers and ensuring business development.

Profit forecast, valuation and rating: Prices of major raw materials pulled back, prices of photovoltaic silica gel and other products were adjusted accordingly, and 23Q3 performance declined month-on-month. We maintain the company's profit forecast for 23-25. We estimate that the company's net profit from the parent in 23-25 will be 370/509/630 million yuan, respectively. Benefiting from policy support, downstream demand for new energy sources such as photovoltaics and lithium batteries is still strong. As the company continues to increase its production capacity, the company's business conditions will continue to improve, and we will maintain the company's “buy” rating.

Risk warning: Product and raw material prices fluctuate, production capacity construction falls short of expectations, product verification risks.