The company's short to medium term projects have strengthened, and performance may be under pressure, but there is room for volume for long-term products, including OCA and MLCC release films. We are firmly optimistic about the company's long-term growth. We expect the company to achieve net profit of 1.32/2.66/430 million yuan in 2023-2025. Considering that the company's new production capacity is invested in 2024, performance is expected to be released. We have given the company a target price of 20 yuan to maintain the “buy” rating.
Project consolidation combined with increased R&D costs put pressure on the company's Q3 profit. 2023Q3 achieved revenue of 529 million yuan, -9.82% year over year and +6.82% month on month. Net profit was realized at 0.19 million yuan, -74.37% year-on-year and -55.36% month-on-month. The company's Q3 performance was under pressure, mainly due to increased project consolidation, depreciation, and amortization, and a sharp increase in the company's R&D expenses. The depreciation and amortization of 2023Q3 was about 64 million yuan, an increase of 118 million yuan over the previous year, mainly due to the addition of PET optical base film lines, etc.; the R&D expenses of 2023Q3 were 70 million yuan, +39 million yuan over the previous year, and 41 million yuan over the previous year. Overall, since the company's new production line will continue to improve during the year, we expect depreciation and amortization to still put some pressure on the company's profits throughout 2023.
The industrial chain layout continues to improve, and high-end products are expected to continue to gain strength. As a leading supplier of platform-type film materials in China, the company continues to expand its capacity in the fields of upstream base films and downstream middle and high-end products. According to the company's announcement, it plans three PET optical base film production lines, OCA coating lines, PVD magnetron sputtering coating lines, and precision release film coating lines, and downstream expansion of OCA optical corneas, MLCC release films, polarizer release films, etc. In the future, the company is expected to build a new material R&D, production and sales platform company integrating base film, glue and coating. At present, many of the company's projects have been successfully put into operation. Projects such as functional tape, polarizer protective film, and PET base film line 3 are in continuous progress and are expected to be strengthened within the year. We expect that from 2024, the company will enter a period of continuous production capacity investment.
Multiple products have been introduced smoothly, and it is expected that mid-range and high-end products will be released. The company's OCA film has been applied to folding screen phones such as Huawei, Honor, and OPPO. With the volume of folding screen phones from domestic manufacturers, the company's OCA film release is highly certain. Furthermore, the company is also actively entering the repair and direct board mobile phone markets. Among them, the direct board phone verification is progressing smoothly, and there is potential for future expansion. The company's microelectronics-related film materials are in a period of climbing production capacity. Among them, the promotion of photosensitive dry film customers is progressing smoothly, and there is a possibility of release in 2024. We expect 2024 to be an important year for the company to release high-end products, and there is room for improvement in performance.
Risk factors: Demand for downstream consumer electronics continues to be weak; raw material prices fluctuate sharply; progress in the construction of new production capacity falls short of expectations; increased market competition has led to oversupply and declining gross margin; products such as MLCC release film for the company's fund-raising projects have failed to be verified as expected, so the new production capacity cannot be fully digested.
Profit forecast, valuation and rating: The company's short to medium term projects have strengthened, and performance may be under pressure, but there is room for volume for long-term multiple products, including OCA and MLCC release films. We are firmly optimistic about the company's long-term growth. We expect the company to achieve net profit of 132/266 million yuan in 2023-2024 (the original 2023-2024 forecast was 4.01/522 million yuan), adding 430 million yuan in net profit for 2025. Due to sluggish downstream consumption and the company's continued large capital expenses, etc., actual operations have not met expectations. Currently, we expect the 2024 performance increase to be mainly due to the company's high-margin optical film material shipments and volume after customer verification for folding screen phones such as Huawei, microelectronics, dry film, and release film customers in the microelectronics sector have completed verification; on the price side, the prices of high-end products are expected to remain basically stable. Considering that the company's performance is expected to be released after the company's new production capacity is invested in 2024, we gave the company a target price of 20 yuan for 2024 (referring to the standard deviation of ±1x of the PE center since the company's listing was 34-52x, giving the company 34xPE in 2024) to maintain the “buy” rating.