Recommended logic: 1) The operating rate of downstream MLCC manufacturers continued to rise to 80%, and the company's carrier revenue profit returned to the 24-year growth cycle; 2) Membrane material revenue of 87 million yuan in '22, expected to be 150 million yuan in '23. At the same time, certification for Korean and Japanese customers has basically been completed. Middle- and high-end replacement volumes are imminent, and the second growth curve has entered a sloping upward period; 3) Global smartphone shipments continued to grow year on year for 2 consecutive quarters. 23Q3/23Q4 decreased by +13.4% and +8.5% year on year; PC shipments narrowed in 3 consecutive quarters. 23Q4 is -2.7% year-on-year, and consumer electronics shipments are expected to achieve full positive growth in 24, thereby boosting the company's demand for carrier belts and release films.
Paper carrier+tape: Demand for downstream MLCC sealing and testing has picked up, and the operating rate has returned to the boom cycle. 1) Global smartphone shipments were corrected year-on-year in the 23Q3/23Q4 quarter; the year-on-year decline in PC shipments narrowed for 3 consecutive quarters, and is expected to improve in 24 years. The recovery on the consumer electronics side is compounded by the continued rise in demand for new energy vehicle electronics, and demand for packaging and testing materials for passive components such as MLCCs has re-entered the boom cycle. 2) The company's paper tape had a global market share of about 67.4% in '22, the gross margin was stable at around 40%, and the leading moat has remarkable properties. 3) Tape is used as a supporting paper tape and has high synergy with the paper tape business. It is expected to simultaneously benefit from a recovery in downstream demand.
Plastic carrier tape: The proportion of black carrier tape has increased, and the market share has increased, and there is plenty of room. 1) Since the company started production of black carrier tape in '18, the overall gross margin of plastic carrier tape has steadily increased to more than 30%, and profitability has improved dramatically. 2) Currently, the market share of plastic carrier belts is basically occupied by foreign giants. The company's market share in '22 was only 2%, so there is plenty of room for replacement improvement.
Release film: Leading Korean and Japanese customers are about to launch, and the middle and high-end alternative markets are opening up. 1) Sample certification for leading Korean and Japanese customers is nearing completion, opening up a mid-range and high-end alternative market of more than 20 billion dollars. 2) Release film accounts for about 15% of MLCC costs, and downstream customers are strongly demanding cost reduction. 3) Strategic customer support+PET base film self-supply+nearby major customer layout and production, and the overall strategy creates a second growth curve for release films. The company is currently one of the few enterprises in the domestic industry with integrated production capacity for base film coating. 4) Replace the first-mover advantage. The company is the fastest progressing domestic company in the field of high-end MLCC release film replacement. It has substantially completed and is close to completing the sample delivery certification process for leading customers in Japan and South Korea. In comparison, most of the business priorities of domestic peers in recent years have focused on polarizer release films and OCA release films. According to industry characteristics, once MLCC leading manufacturers select a range of release film suppliers, they are less likely to add or replace them in the short term. Compared with domestic peers, the company has a certain first-mover advantage.
Profit forecasting and investment advice. The company is a leader in the passive component packaging materials industry. The paper tape business accounts for more than 60% of the market, and its comprehensive competitive advantage is obvious. As demand for components recovered in '24, the operating rate of the company's paper tape business returned to a boom level of over 80%. At the same time, after 6 years of development in the release film business, Japanese and South Korean customers are expected to start selling in '24. We expect that the company's net profit from 2023-2025 will maintain a compound annual growth rate of 44.6%, giving the company 35x PE in 2024, corresponding to a market value of 13.03 billion yuan and a target price of 30.10 yuan. For the first time, coverage will be given a “buy” rating.
Risk warning: the risk of a sharp rise in raw material prices, the risk that downstream demand recovery falls short of expectations, and the introduction of high end release film falls short of the expected risk.