The company's 23Q3 net profit increased month-on-month, and the photovoltaic business progressed steadily. The photovoltaic film and wire adhesive tape are expected to continue to be released. The lithium battery and 3C business are developing rapidly, and diversified new products are being introduced. Considering the rapid decline in the price of photovoltaic modules, the compression of industrial chain profits, the intense competition of photovoltaic film, the slowdown in large-scale shipments of heterojunction modules, and the suppression of the profitability of the company's main photovoltaic backsheets and film products, we adjusted the company's net profit forecast for 2023-2025 to 1.33, 2.90, and 383 million yuan (the original forecast was 5.44, 775, and 920 million yuan). Referring to comparable companies and their historical valuation levels, the company was given 30 times PE in 2024, and the target price was lowered to 20 yuan (the original target price was 31 yuan) to maintain the “buy” rating.

The company's net profit increased month-on-month in 23Q3. 2023Q1-Q3 achieved revenue and net profit of 3.34 billion yuan and net profit of 85 billion yuan, +4% and -63% of the same period last year. 23Q3 revenue and net profit were 11.2 billion yuan and 35 million yuan respectively, +16%, -35%, -5% month-on-month, and +103%. The 23Q3 asset impairment account no longer dragged down performance, achieving a month-on-month improvement in net profit.

The film business maintained a high level of growth in shipment volume, and fluctuations in particle prices had a significant impact on film profits. The company's film shipments in the first three quarters of 2023 were 200 million square meters, +68% over the same period last year, maintaining rapid growth. The company's 23Q3 film sales unit price fell 6.7% month-on-month, particle procurement costs fell 11.2% month-on-month, and profitability was restored to a certain extent. According to Baichuan Yingfu data, the price of photovoltaic-grade EVA (Zhejiang Petrochemical) particles fell 18% month-on-month in October. We believe that the profitability of 23Q4 ordinary film may decrease due to expensive raw materials, but shipments of specialty products such as photovoltaic film will continue to increase, and the overall profit pressure on the film business will ease.

It is planned to expand the production of light-to-adhesive films and actively embrace the N-type era. The company announced on October 31 that it plans to invest in the construction of 50GW photovoltaic film and other advanced photovoltaic cell packaging materials in Xuancheng, Anhui. The first phase will produce 6GW of photovoltaic film per year, and the construction period of the project is 24 months. Xuancheng City has a heterojunction photovoltaic industry chain cluster. The expansion of production capacity will help the company enjoy economies of scale, consolidate the company's technological product advantages of photovoltaic film, and enhance the company's profitability and market competitiveness. We believe that photovoltaic film has a certain premium power compared to traditional photovoltaic packaging film. As an industry leader, the release of production capacity will optimize the product structure and enhance profitability.

The promotion of new products such as BC wire and tape, and differentiated products highlight R&D capabilities. The company launched BC battery wire welding tape, which can block gaps in battery cells, increase power generation efficiency and beautify the appearance. According to the company's announcement, wire welding tape is currently being supplied to a leading component manufacturer and has been successfully launched, with monthly sales exceeding 10 million yuan. BC Battery's leading companies Longji Co., Ltd. and Aixu Co., Ltd. both announced that they will actively expand production capacity. We believe that the company is expected to gain a competitive advantage in the BC battery field through differentiated products.

The lithium battery and consumer electronics business is developing rapidly, and diversified layouts can be expected to grow. The company actively maintains the market share of existing products, maintains profitability through customer development and product upgrades, and also actively introduces products such as automotive-grade FFC insulating film, high-strength insulating tape for battery cases, and water-cooled plate insulation film, etc., and orders are expected to increase. The company's lithium battery and consumer electronics business is developing rapidly, and with the gradual release of new production capacity, it is expected that it will break through the bottleneck of restrictions and achieve rapid business development.

Risk factors: New PV installations fall short of expectations; shipments of heterojunction modules and BC modules fall short of expectations; raw material prices fluctuate sharply; construction of additional production capacity falls short of expectations; risk of increased competition in the industry.

Profit forecast, valuation and rating: Considering the rapid decline in PV module prices, the compression of industry chain profits, intense competition in photovoltaic film, the slowdown in large-scale shipments of heterojunction modules, and the suppression of the profitability of the company's main photovoltaic backsheets and film products, we lowered the company's net profit forecast for 2023-2025 to 1.33, 2.90, and 383 million yuan (the original forecast was 544, 7.75, 920 million yuan), corresponding to the 2023-2025 EPS forecast of 0.30, 0.66, 0.87 yuan. Photovoltaic auxiliary materials companies Foster, Follett, and Yubang New Materials unanimously anticipated an average value of 15 times PE in 2024. Since the company's listing, the PE-TTM average value has been 64 times, and the 10/20/30 quantile is 41/47/52 times, respectively. Considering that the company's photovoltaic film and wire welding tape are emerging products, they have a certain technical premium in an environment where photovoltaic auxiliary materials are fully competitive. The company was given 30 times PE in 2024, the target price was lowered to 20 yuan (the original target price was 31 yuan), and the “buy” rating was maintained.