Description of the event

The company released its three-quarter report for 2023: the first three quarters achieved revenue of 4.350 billion yuan, an increase of 10.8%; realized imputable net profit of 96 million yuan, a decrease of 29%; and realized net profit deducted from non-return parents of 0.07 million yuan, a decrease of 85.3%.

Equivalent to Q3, it achieved revenue of $1,644 million, an increase of 41.2%; realized imputable net profit of $22 million, and realized net profit of non-attributable net profit of $11 million, a decrease of 467.4%.

Incident comments

Revenue is growing, and earnings are under pressure. The company achieved revenue of 4.350 billion dollars in the first three quarters, an increase of 10.77%. It is expected that the LCD module and new materials sector will remain under pressure, and the main increase may contribute to Kaisheng Quartz Materials (Taihu Lake). The gross profit margin was 12.7% in the first three quarters, down 3.6 pct, mainly due to falling prices of zirconium products and weak demand for consumer electronics. The rate for the first three quarters decreased by 1.6 pct to 11.1% year on year. Among them, financial and R&D rates fell 1.0 and 1.3 pct, and management fees increased 0.7 pct; other income also fell 16.71 million to 70.83 million due to reduced government subsidies; net investment income increased by 10.34 million, credit impairment losses increased 7.21 million; and asset disposal income decreased by 7.15 million. In the end, the imputed net profit rate was 2.2%, down 1.2 pct from the previous year; after deducting the non-attributable net profit rate of 0.2%, the year-on-year increase was 0.1 pct.

Q3 revenue also increased by 41.2%, which is expected to be mainly influenced by Taihu Quartz. In the end, the net profit margin after deducting non-attributable profit was -0.7%, down 0.9 pct from the previous year.

The whole industry chain layout has obvious technical advantages. The company's new display sector covers ITO conductive film glass, glass covers, touch modules, glass thinning, display modules, and fully compatible touch display module products, forming a relatively complete industrial chain layout from glass originals to integrated modules, thus gaining obvious competitive advantages in cost control, quality consistency, flexible production, rapid response, etc., and can provide superior overall display touch solutions for major terminal customers.

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 advice: Looking forward to the expansion of the company's new materials business categories and UTG cover volume, the net profit attributable to 2023 and 2024 is estimated at 100 million to 240 million, corresponding to PE 109, 46 times, and maintaining the buying rating.

Risk warning

1. Demand for consumer electronics continues to be sluggish;

2. Expectations that the new material production line will be put into operation are low.