Draft stock options incentive plan announced to maintain “buy” rating

On December 26, the company announced a draft stock option incentive plan. It plans to grant 18.11 million stock options to incentive recipients such as company executives and core business executives. The initial exercise price was 12.59 yuan/share. The performance assessment target was that the compound growth rate of net profit withheld from non-return mother in 24-26 years was not less than 180%/124%/90% (based on a 20-22 year average), reflecting the company's confidence in the rapid growth of future performance. We believe that the incentive plan will help to fully motivate employees, maintain the company's estimated net profit of 1.5/2.7/370 million yuan (CAGR +38.8%) in 23-25, which is 1.0 times the average PEG expected by the company's 24-year Wind. Considering the high scarcity of the company's new products such as high-purity quartz sand and UTG, the company was given 1.3 times PEG for 24 years, with a target price of 14.23 yuan to maintain “purchase”.

The incentive plan covers a wide range of topics to fully motivate employees at all levels

The number of stock options to be awarded under this incentive plan is 18.11,111 million, accounting for about 1.92% of the company's total share capital on the day the draft incentive plan was announced. Of these, 16.3 million were granted for the first time, 195 people were awarded for the first time, accounting for about 3.6% of the company's total number of employees at the end of November 30, including the company's chairman, deputy general manager, secretary of the board of directors, deputy party committee secretary, and 188 core management, business and technical cadres. We believe that this incentive plan covers a wide range of topics, helps attract and retain outstanding talents at all levels of the company, fully mobilizes their enthusiasm and creativity, and effectively enhances the cohesion of the core backbone and the core competitiveness of the enterprise.

The performance assessment target points to a high increase in net profit. The target growth rate reflects the company's confidence in future development, taking into account the continuous increase in ROE. The performance assessment target is based on the average net profit deducted for 20-22 years. The compound growth rate for 24-26 years is not less than 180%/124%/90%, and the corresponding net profit deducted from non-return mother is 1.8/2.6/30 billion yuan, respectively. At the same time, the performance assessment target also includes a 24-26 ROE of no less than 4.26%/5.84%/6.36%, and higher than the target company's 75th quartile level or the same industry average. The continued increase in ROE targets reflects the importance the company attaches to improving the quality of operations.

UTG and high-purity quartz sand projects are progressing steadily, and are expected to benefit from the rapid development of the industry. According to DSCC, global folding screen phone shipments increased 16% year on year in 23Q3; according to CinnoResearch, China's folding screen phone shipments increased 175% year on year in 23Q3. We believe that as folding screen product technology becomes more mature and costs drop further, the penetration rate and shipment volume of folding screen phones are expected to continue to grow rapidly. The first phase of the company's UTG production line has been put into operation, and the second phase production line is expected to be gradually put into operation in 24, which is expected to benefit from increased demand for folding screen products in the future. Meanwhile, the company's purified high-purity quartz sand has begun to be supplied, and the synthetic production line is expected to be put into operation in 24, injecting new momentum into the company's growth.

Risk warning: demand for folding screens falls short of expectations, UTG production line construction falls short of expectations, product iteration risks.