Event: The company released its performance report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 269 million yuan, +12.53% over the same period; realized net profit of 52 million yuan, +2.65%; achieved net profit deducted from non-net profit of 65 million yuan, -3.28% year-on-year. On a quarterly basis, the company achieved revenue of 98 million yuan in Q3 of 2023, +43.24%, +2.16% over the previous year; realized net profit of -0.09 billion yuan, +59.30% over the same period, +59.46% over the previous year; achieved net profit of -013 million yuan, +48.28% over the same period, and +47.27% over the previous month.
Q3 performance drastically reduced losses, and high-end shielding film shipments increased: In 2023, Q3 company performance improved markedly, revenue increased year on year, and profit side decreased significantly month-on-month, mainly: 1) shielding film sales increased significantly month-on-month, and sales of the company's high-end shielding film products (USB series) increased significantly, and the product structure improved markedly; 2) The company adopted a series of measures for the copper foil business to reduce losses in Q3; 3) Q3's new peelable copper foil customer certification made further progress and received small sample orders.
The gross margin of Q3 in 2023 was 37.20%, +3.27pcts year over year and +12.15 pcts; net profit margin was -7.71%, +23.92pcts year over year. +14.21pcts month-on-month. In terms of expenses, the sales/management/R&D/finance expense ratio for the first three quarters of 2023 was 3.00%/13.95%/16.74%/0.54%, respectively, with a year-on-year change of -0.03/+1.48/ -6.69/+0.42pct.
High-end shielding film emissions help restore performance, and 5.5G expands future growth space: According to Canalys data, global smartphone shipments in Q3 2023 were 293.4 million units, down only 1% year on year, up 14.10% month on month, indicating that consumer electronics demand is picking up during the traditional peak season. In terms of the domestic market, according to IDC data, the domestic folding screen mobile phone market continued its rapid growth trend in Q3, with shipments reaching 1.96 million units, an increase of 90.4% over the previous year. Benefiting from entering the traditional peak season of consumer electronics, many mobile phone brands have released new models one after another. Shipments of high-end mobile phones such as superimposed folding screens have increased dramatically. Q3's electromagnetic shielding film volume and price have risen sharply, and performance has been significantly restored, helping the company's profits improve markedly. The company's shielded film USB series products are mainly used in high-end series and flagship smartphones of domestic and foreign related brands, and the gross margin is higher than that of ordinary products.
Recently, Huawei released a full range of 5.5G solutions. 5.5G requires higher shielding efficiency, and there is a high demand for high-frequency shielding films. The company said that high-frequency shielding film products such as the USB3 series are used in current 5G communication equipment. At the same time, if the integration of 5.5G mobile phone devices is further improved, or if a folding scheme is adopted, the requirements for the thickness and bending resistance of the high-frequency shielding film will also be higher. We believe that the company's high-end shielding film is expected to benefit from the evolution of 5.5G solutions in the future, and shipments will continue to grow, thereby optimizing the company's product revenue and profit structure, and the company's profit margin will continue to improve.
Multiple product lines are working collaboratively, and we are optimistic about the subsequent launch of peelable copper/FCCL: In Q3 2023, many of the company's new products progressed smoothly. Among them: 1) Peelable copper: Relevant specification products have passed the certification of some carrier board manufacturers and terminals, and continued small-batch shipments have begun. Currently, they are mainly used in IoT (such as smart homes) related scenarios. As the company's stripable copper becomes more stable and continues to be iteratively upgraded, it is expected that it will enter the field of mobile phone chip packaging in the future. 2) FCCL: Relevant products were shipped in small batches in the second and third quarters of this year. Currently, copper foil for FCCL produced in Zhuhai is stabilizing, which is conducive to the advancement of the FCCL project. It is expected that around the first quarter of 2024, as major equipment is gradually put in place, the company's FCCL production capacity will increase significantly, while shipment volume will gradually increase. 3) Resistance film: Currently, we are continuously sending samples to relevant customers for testing, and some customers have entered the factory review stage. 4) PET composite copper foil: Samples have been sent to mainstream battery manufacturers, and the development of PP substrate samples has also been promoted in an orderly manner according to customer needs.
Raise the profit forecast and maintain the “increase in holdings” rating: We are optimistic that the continuous increase in the company's high-end shielding film shipments will drive the company's profit recovery. At the same time, the loss of standard copper foil products has been reduced under the company's control. Combined with the gradual release of new products such as peelable copper and VLP, FCCL, and resistance film, it is expected that the company's net profit from 2023 to 2025 will be -56 million yuan, 60 million yuan, and 160 million yuan EPS, respectively, -0.70 million yuan, 0.74 yuan and 2.02 yuan. The PE for the years 24-25 was 63X and 23X, respectively.
Risk warning: risk of macroeconomic fluctuations, downstream demand falling short of expectations, risk of raw material price fluctuations, impact of exchange rate fluctuations.