Description of the event

The company released its three-quarter report for 2023, achieving revenue of 4.2 billion yuan (+7.0% year-on-year), imputed net profit of 500 million yuan (-16.2% year-on-year), and realized imputable non-net profit of 500 million yuan (-18.0% year-on-year). Among them, Q3 achieved revenue of 170 million yuan in a single quarter (+21.6% yoy, +11.6% yoy), realized imputed net profit of 27 million yuan (+6.7% yoy, +13.5%), and realized imputable non-net profit of 24 million yuan (+7.9% yoy, +11.4% yoy).

Incident comments

The company is a global manufacturer of novel functional coating materials that targets the high-end consumer electronics and passenger car fields. Through “interactive” independent research and development and a “customized flexible manufacturing” model, the company provides customers with systematic solutions in various categories such as coatings, inks, adhesives, etc., focusing on the development, production and sales of new functional coating materials in the high-end consumer electronics field and the passenger automobile field.

23Q3 improved further month-on-month, and is expected to rise steadily in the future. In the first three quarters of 23 years, the company's high-end consumer electronics sector achieved a total revenue of 340 million yuan, an increase of 1.5% over the previous year, of which the third quarter achieved revenue of 140 million yuan, an increase of 20.1% over the previous year and an increase of 12.0% over the previous year. The mobile phone and related accessories, notebook computers and related accessories businesses all maintained a double month-on-month growth trend in the third quarter. On the one hand, with the arrival of the traditional peak sales season and improved terminal demand, the company's product shipments continued to rise. On the other hand, the company responds to the situation and actively grasps industry development opportunities, and uses differentiated innovative processes and leading technical advantages to expand growth and explore potential, such as providing innovative coating solutions for the new Mate 60, a series of products for major domestic consumer electronics customers, etc. In the first three quarters of 2023, the company's passenger car sector achieved a total revenue of 66.57 million yuan, an increase of 32.2% over the previous year, of which the third quarter achieved revenue of 26.626 million yuan, an increase of 23.3% over the previous year and 14.0% over the previous year. The company is dedicated to deepening cooperation with many well-known terminal and auto parts manufacturers. While concentrating on the interior coating market, the company makes every effort to promote the smooth implementation and mass production delivery of exterior coating projects to help accelerate the development of subsequent business. The company achieved gross margin/net profit margin of 51.6%/15.8% in 23Q3, a year-on-year change of -1.6/-2.0 pct, and a month-on-month change of +0.3/+0.2 pct. In the first three quarters of 23 years, the company's R&D expenditure rate was 15.4%, and R&D investment continued to be high, covering many fields.

The company was the first to launch in the 3C paint field, covering all aspects. It has achieved effective penetration into well-known domestic and foreign terminal brands such as Apple, HP, Google, Huawei, and Xiaomi, and has begun a global layout to strengthen market development. In the field of automotive coatings, the company aims to enter passenger car interior and exterior coatings. With the two core technical advantages of “PVD coating technology for passenger car parts” and “anti-fog resin and coating technology for passenger car lights”, it has achieved double breakthroughs in technology and market. Core customers that have supplied or entered the customer system include North American T, Valeo, BYD, and NIO. The company proactively lays out insulation coatings for power batteries and has become the world's first “insulation coating materials+digital coating technology” systematic solution provider in the power battery industry. In order to meet environmental requirements, the company proactively lays out water-based coatings to consolidate its leading edge in technology. Furthermore, the company has made breakthrough progress in fields such as aircraft interior coatings, new integrated circuit ink products, and automotive original & aftermarket.

The company is a leading high-end 3C paint company in China, actively developing the automotive paint market. Benefiting from the rapid development of new energy vehicles, the company has broad business prospects. With leading technical advantages, the company is expected to complete the domestic replacement of automotive paint after 3C paint. The estimated net profit attributable for 2023-2025 is 0.9/14/220 million yuan, respectively, giving it a “buy” rating.

Risk warning

1. New technology and product development risk; 2. Downstream market demand fluctuation risk; 3. Increased risk of market competition; 4. Product verification falls short of expectations.