The company is a leading enterprise in the domestic OLED organic light-emitting materials and evaporation source industry. The company's organic light-emitting materials business has continued to grow rapidly in recent years, and the evaporation source equipment business is expected to benefit from the construction of a domestic 8.6th generation AMOLED production line and gradually release elasticity. In addition, the company is actively expanding the layout of core materials and equipment for perovskite batteries, which is expected to open up a new growth track. We are optimistic about the company's long-term development prospects. We expect the company to achieve net profit of 133 million million/206 million/328 million yuan in 2023/24/25. The corresponding EPS forecast is 0.90/1.38/2.21 yuan, and the current price corresponding to 2023/24/25 PE is 52.1/34.0/21.2 times. We gave the company a valuation level of 40xPE in 2024, corresponding to a target market value of 8.22 billion yuan and a corresponding target price of 55 yuan. First coverage, and a “buy” rating.
Company profile: A leading enterprise in the domestic OLED organic light-emitting materials and evaporation source industry. The company's core business includes OLED organic light-emitting materials business and evaporation source equipment business. Among them, organic light-emitting materials are the core materials for OLED panel manufacturing, and evaporation sources are the core components of evaporators, which are key equipment for OLED panel manufacturing.
At present, the company has established stable cooperative relationships with many well-known OLED panel manufacturers, including Visiono Group, Hehui Optoelectronics, TCL Huaxing Group, BOE, Tianma Group, etc. The company's operating income and net profit for the first three quarters of 2023 were 415 million yuan/YoY +5.4%, and 98 million yuan/YoY -12.7%, respectively.
Industry analysis: AMOLED has become the mainstream development direction of OLED, and China is speeding up the localization process.
AMOLED is currently the main direction of OLED display development. Qunzhi Consulting predicts that the penetration rate of AMOLED screens in the smartphone market is expected to increase to 46% in 2023; HIS expects global AMOLED panel revenue to reach 37.4 billion US dollars by 2025. In recent years, China has introduced a series of policies to accelerate the localization of the OLED industry chain. 1) Organic light-emitting materials: Organic light-emitting materials are the core components of OLED panels. They have the characteristics of high development difficulty, long verification cycle, and fast update and iteration. Leading suppliers of organic light-emitting materials are concentrated in countries such as Europe, America, Japan, and South Korea, while their main markets are China and South Korea. UBI Research predicts that the size of the Chinese market is expected to reach US$1.07 billion in 2028, and the global share will rise to 44%. 2) OLED devices: OLED devices are a typical technology-intensive industry with high technical barriers. Vacuum evaporators are special equipment for the production of AMOLED panels. They are mainly monopolized by Japan's Canon Tokki. The core component evaporation source plays a decisive role in the evaporation effect and yield. At present, Olaide has completed the domestic replacement of the evaporation source supporting the domestic Tokki evaporator. According to the company announcement, as of March 2023, the supporting rate of the company's evaporator equipment in the domestic Tokki evaporator is as high as 80.6%.
Company analysis: Continue to lead the domestic replacement of OLED materials and evaporation source equipment, and expand the layout of perovskite business.
1) Organic light-emitting materials business: The company provides organic light-emitting materials for various structural layers of OLED to downstream panel manufacturers. Sales revenue in 2022 exceeded 200 million yuan, with a year-on-year growth rate of nearly 50%. Through independent research and development, the company has accumulated a wealth of core technologies for organic light-emitting materials, constructing technical barriers, and has made phased progress in R', G', and B' materials, packaging materials, and PDL materials. 2) Evaporator business: At present, the evaporation source equipment produced by the company has completely broken technical barriers abroad, solved the “stuck neck” technical problem of the domestic 6th generation AMOLED production line, and is the only supplier of high-generation high-performance linear evaporators in China. The profitability of the company's evaporation source products is outstanding, and the gross margin is close to 70%. With the gradual commencement of domestic 8.6th generation AMOLED production line construction, the company's evaporation source equipment sales scale is expected to resume rapid growth. 3) Perovskite business: In November 2022, the company announced the “Development Project for Perovskite Structured Solar Cell Evaporation Equipment” and the “Low-cost Organic Perovskite Carrier Transmission Material and Long-life Device Development Project” to expand the layout of perovskite battery-related materials and equipment business, which is expected to create a new growth curve.
Risk factors: risk of fluctuations in the macroeconomic environment; risk of fluctuations in the OLED industry and increased market competition; risk of technological upgrading and iterative progress falling short of expectations; risk of falling demand for core products; risk of high customer concentration; risk of high customer concentration; risk of dependence on imports of some core raw materials for evaporation source products.
Investment advice: The company is a leading enterprise in the domestic OLED organic light-emitting materials and evaporation source industry. The company's organic light-emitting materials business has continued to grow rapidly in recent years, and the evaporation source equipment business is expected to benefit from the construction of a domestic 8.6th generation AMOLED production line and gradually release elasticity. In addition, the company is actively expanding the layout of core materials and equipment for perovskite batteries, which is expected to open up a new growth track. We are optimistic about the company's long-term development prospects. We expect the company to achieve net profit of 133 million million/206 million/328 million yuan in 2023/24/25. The corresponding EPS forecast is 0.90/1.38/2.21 yuan, and the current price corresponding to 2023/24/25 PE is 52.1/34.0/21.2 times. We selected Feikai Materials and Wright Optoelectronics as comparable companies. The average PE valuation of comparable companies in 2024 was 33 times (Wind's unanimous estimate), while according to the PEG valuation method, the company's corresponding PE valuation in 2024 was 41 times. Combining PE and PEG valuation methods, and considering that the company's two core businesses both have high technical barriers and strong profitability, we gave the company a 2024 40xPE valuation level, corresponding to the target market value of 8.22 billion yuan, corresponding to the target price of 55 yuan, coverage for the first time, and a “buy” rating.