Incidents:

The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 1,001 billion yuan, a year-on-year decrease of 6.71%, net profit of 23 million yuan, a year-on-year decrease of 186.04%, a year-on-year decrease of $36 million, a year-on-year decrease of 323.88%, a gross profit margin of 12.45%, a year-on-year decrease of 4.58pct, and a net profit margin of -2.28%, a year-on-year decrease of 4.82pct.

In 2023Q3, the company achieved operating income of 390 million yuan, a year-on-year decrease of 1.80%, and net profit of 24 million yuan, a year-on-year decrease of 311.76%.

reviews

Film shipments continued to increase at a high level. The company's revenue in the third quarter increased by 42% month-on-month, and the year-on-year decline was significantly narrower than in the second quarter. Among them, revenue for hot melt/photovoltaic films/hot melt wall covering/reactive adhesives was -14%/-5%/-18%/+8%. PV film shipments increased more than 50% year on year, continuing high growth. We expect 1) to benefit mainly from strong downstream demand for photovoltaics. According to data from the National Energy Administration, the total installed capacity of domestic photovoltaics in January-September was 128.94 GW, +145%; in September, the new domestic PV installed capacity was 15.78 GW, +94% over the same period; 2) The company's production capacity was put in one after another, adding to the smooth development of major downstream customers, driving a significant increase in shipments. Since this year, new production capacity for the company's photovoltaic film has been launched one after another. At the same time, it has gradually developed leading customers for downstream photovoltaic modules, and cooperation with existing customers continues to deepen. Looking ahead, we continue to be optimistic that the company relies on deep technology accumulation in the hot melt adhesive industry. With the construction of new production capacity bases from the second half of the year to next year, it is expected that it will continue to maintain a strong development momentum and rise to the top of the industry.

Profit is bottomed out, and the industry waits for it to clear up. The company's gross profit margin for the third quarter was 4.78%, a sharp decline from month to month. The main reason was that film gross margin fell 5.40 pct year on year due to worsening competition in the industry and turned negative. Overall, the gross margin of other businesses remained stable. Comparing other film companies, it was found that with the exception of a few leading companies that maintained a certain level of profit, most of them experienced losses to varying degrees, so the company's profit fluctuations in the third quarter were mainly affected by the industry pattern. The period expense ratio was 13.28%, year-on-year -1.64pct, of which sales/management/R&D/financial expenses were -0.17/+0.78/-0.26/-1.98pct year-on-year, and the company's cost-side control results were good. Looking ahead, as the industry pattern deteriorates at an accelerated pace, small and medium-sized enterprises are expected to gradually exit the market due to increased losses, and industry profits are expected to gradually recover at that time.

Profit forecast: As an upstart in the photovoltaic film industry, the company is expected to further increase its market share and rise to the top tier of the photovoltaic film industry in the future, relying on deep technology in the hot melt adhesive industry. We expect the company to achieve net profit of 0.59/ 2.19/ 3.56 yuan from 2023-2025, corresponding to PE 58/ 16/10 times. PE was valued at 20 times the 2024 profit, with a target price of 10.1 yuan to maintain the “buy” rating.

Risk warning: downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.