Key points of investment:

Kaisheng Technology is a listing platform for display and application materials owned by China Building Materials. The company was founded in 2000, starting with float glass and ITO conductive film glass, and then went through three stages of development: 1) equity changes and trade-in to enter the new material circuit; 2) acquisition and integration to enter the new display field; 3) continuous acquisition and integration, deepening the development of the main business, gradually forming today's “display+application materials” dual main business model, and is an important R&D and manufacturing platform for “display materials and applied materials” in the “3+1" strategy of its controlling shareholder Kaisheng Technology Group.

A leading domestic supplier that has mastered a full set of localized UTG production process technology. The UTG market has broad prospects under the combined driving force of folding screen mobile phone shipments and increased penetration rate of UTG covers. It is estimated that in 2025, China's UTG market space is expected to exceed 1.4 billion yuan, 7 times the 2022 market space. Kaisheng Technology successfully independently developed 30 micron ultra-thin flexible glass and continued to advance it to achieve “high-strength glass - ultra-thin thinning - high-precision post-processing” covering the national UTG industry chain. It is one of the few domestic enterprises that have mastered a full set of localized UTG production process technology, and will fully benefit from the UTG glass market volume.

The new materials business is gradually replacing domestic production in the “small but beautiful” market. The company has a wide range of small but beautiful new material segments, mainly including silicon series (high-purity synthetic quartz sand+spherical quartz powder), zirconium series (fused zirconia+zirconium silicate+stabilized zirconium), titanium series (nano barium titanate) and other new materials (rare earth polishing powder+hollow glass beads). We believe that although there are many market segments in the company's layout, there are commonalities: 1) The domestic market pattern in most of the new material segments that the company has entered had the characteristics of “the market being occupied by imported products from overseas or smaller companies” at the beginning of the layout; 2) the downstream application scenarios of new materials have high prosperity, and the materials themselves have sufficient market demand; 3) after the company entered the market through self-developed technology breakthroughs or mergers and acquisitions, it relied on the financial strength of listed companies to complete production expansion and thus achieve domestic production replacement.

Profit forecast and investment analysis: The company's net profit for 2023-2025 is estimated to be $1.35, 2.29, and 351 million yuan, respectively, and EPS of 0.14, 0.24, and 0.37, respectively. According to estimates, the average PEG for comparable companies in 2024 was 0.85. We believe that the company is different from traditional display materials companies or leading new material companies in a certain field. In the field of display materials, the company has mastered a full set of localized UTG production process technology, and the profit of the UTG industry chain shows a typical “smile curve”. Most domestic enterprises are in the UTG thinning and molding process with low intermediate profit margins. Kaisheng Technology's integrated production advantages will bring more profits to the company; in the field of new materials, the company focuses on laying out “small but beautiful” new materials with high gross profit, high net profit, and a wide range of future applications in the market. As a result, domestic production was replaced. The company's PEG in 2024 was 0.77, and the average PEG for comparable companies was 0.85. In 2024, the company was given an industry average. In 2024, the company had room to rise by 10.4%, covering for the first time, giving it an “increase in weight” rating.

Risk warning: the risk of a sharp increase in raw material costs; the risk of patent technology infringement; the growth rate of the high-tech industry falls short of expectations.