Incident: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 276 million yuan, a year-on-year decrease of 8.55%; net profit to mother was 19.60.3 million yuan, which changed from profit to loss over the previous year. On a quarterly basis, Q4 achieved operating income of 67.3963 million yuan, a year-on-year decrease of 13.91% and a year-on-month decrease of 22.10%; net profit to mother of 119.303 million yuan, which changed from profit to loss and profit to loss year-on-year.

Poor terminal demand and increased industry competition dragged down the company's 2023 performance. In 2023, the company's sales volume of high-performance PI film was 944.62 tons, up 24.73% year on year; the average price was 287,300 yuan/ton, down 26.04% year on year. The company's profitability and average product price declined markedly. On the one hand, it was due to the narrowing of terminal demand in the global consumer electronics market during the reporting period and adjustments to the company's product sales structure; on the other hand, South Korea's PIAM drastically lowered the price of thermal control PI film since the beginning of 2023, increasing the competitive pressure on the company's thermal control PI film, and the resulting sharp decline in revenue. During the reporting period, the company's thermal control PI film revenue fell 43.09% year on year. In addition, factors such as the year-on-year increase in the company's R&D expenses during the reporting period, the sharp year-on-year reduction in government subsidies, and the year-on-year increase in financial expenses due to increased interest on convertible bonds and loans also had a certain negative impact on the company's profit performance throughout the year.

Production capacity at the Jiaxing base is about to be released one after another, and the company's performance in 2024 is expected to be repaired. Currently, the construction of the 1,600 tons/year high-performance polyimide film project of the company's subsidiary Jiaxing Ruihuatai has basically been completed. Among them, 2 200 tons/year production lines were put into use in September 2023, 2 200 tons/year production lines are continuously undergoing product process debugging, and 2 400 ton/year chemical production lines have also been commissioned one after another since December 2023. It is expected that production capacity at the Jiaxing base will be released one after another in 2024, contributing to a considerable increase in the company's performance.

According to the company's business plan, the company's annual revenue growth rate is expected to reach 60% in 2024. The release of production capacity in Jiaxing will help the company improve product layout capabilities, production efficiency, and guarantee supply capabilities for products in the electronics field. At the same time, it can also provide the company with more R&D and online resources to help the company accelerate the expansion of the downstream application market.

R&D investment continues to increase, and the prospects for industrialization of research projects are good, companies have abundant reserves for research projects, and maintain R&D investment according to technological development routes. During the reporting period, the company's R&D expenses increased 19.06% year on year; R&D expenses ratio was 11.67%, up 2.71 percentage points year on year. As R&D investment continues to increase and new production capacity is released, in 2024, the company will accelerate the launch of new 5/6G low dielectric substrate and flexible electronic substrate products, promote upgraded products of high thermal conductivity thermal control PI films, and strive to achieve mass production of TPI electronic substrates and optical-grade CPI films, accelerate breakthroughs in the application of new energy market evaluations of PI films for COF for integrated circuits and high thermal conductivity PI films for semiconductors, and develop a series of new functional products such as PI varnishes for automobiles, PI for OLED substrates, and CPI pastes. As the company accelerates the industrialization process of ongoing research projects, the added value of the company's products and overall market competitiveness are expected to continue to increase.

The investment proposal estimates that the company's revenue for 2024-2026 will be 4.72, 683, and 90 billion yuan, respectively, up 71.17%, 44.59%, and 31.79% year-on-year; net profit to mother will be 0.38, 1.02, and 172 million yuan, respectively, turning into profit and loss, increasing by 169.72% and 69.05%; EPS will be 0.21, 0.57, and 0.96 yuan/share, respectively, corresponding PE 68.87, 25.53, and 15.10 times, respectively. We are optimistic about the long-term growth momentum brought to the company by the release of production capacity at the Jiaxing base and the industrialization of products under development, and maintain a “recommended” rating.

Risks indicate the risk that downstream demand falls short of expectations, the risk of increased competition in the industry, the risk that raw material prices will rise sharply, the risk that production capacity at the Jiaxing base will not be released as expected, and the risk that products under development will not progress as expected.