Incident 1: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 3,737 billion yuan, an increase of 2.67% over the previous year, and realized net profit of 329 million yuan to mother, a decrease of 20.78% over the previous year. In Q4, the company achieved revenue of 912 million yuan, a year-on-year decrease of 2.27% and a year-on-month decrease of 8.56%; realized net profit to mother of 0.23 million yuan, a year-on-year decrease of 67.93% and a year-on-year decrease of 73.15%.

Incident 2: The company released its 2024 quarterly report. During the reporting period, the company achieved operating income of 921 million yuan, up 7.26% year on year and 0.99% month on month; realized net profit of 51 million yuan, down 28.23% year on year and 120.83% month on month.

In '23, production and sales of the company's main products increased, profits were under year-on-year pressure, and 24Q1 profits improved month-on-month. In '23, the company actively adjusted its product structure, continuously increased the sales share of differentiated varieties and export orders, and maintained a high operating rate of equipment and a reasonable level of profit on the basis of continuous expansion of production capacity. In '23, the company achieved revenue of 3.60, 13.08, 9.62, 8.23, and 123 million yuan respectively, with year-on-year changes of -19.02%, +0.54%, +3.80%, +6.17%, and +8.95%, respectively. Among them, sales of new energy materials, optical film materials, and electronic materials increased significantly year-on-year. The three achieved sales volume of 5.83, 8.84, and 39,300 tons, respectively. 32.92% In terms of gross margin, the company's gross margin in '23 was 19.01%, down 1.7 pct year on year. Among them, the gross margins of electrical insulation materials, new energy materials, optical film materials, electronic materials, and flame retardant materials were 18.91%, 23.67%, 14.80%, 17.51%, and 16.34%, respectively, with year-on-year changes of +2.1, -6.3, +3.4, -1.7, and +6.6pct, respectively. In 24Q1, the company's production and sales of electrical insulation materials, new energy materials, electronic materials, and environmentally friendly flame retardant materials all increased year on year, but prices declined year on year. The company's gross sales margin was 12.71%, down 8.87 pct year on year, and 5.68 pct month on month.

Promote the construction of additional production capacity and continue to build the core competitiveness of the main business. In '23, the company successfully completed trial production of various industrial projects, such as the special functional polyester film project, the 20,000 tons/year production of the new optical grade polyester base film project for display technology, the 20,000 tons/year MLCC and high-performance polyester base film project for PCBs, and the additional production capacity was released as scheduled. At the same time, the company is vigorously promoting the construction of additional production capacity and striving to achieve operating revenue of more than 5 billion yuan in 24 years. Currently, the company is building an optical grade polyester base film project with an annual output of 25,000 tons, an optical grade polyester base film technology transformation project with an annual output of 20,000 tons, a functional film material industrialization project with an annual output of 100 million square meters, a special resin material industrialization project for high-frequency high-speed printed circuit boards with an annual output of 5,200 tons, a hydrogen energy functional polymer material industrialization project, an annual output of 20,000 tons of optical grade polyester base film project, a functional PET film project with an annual output of 20,000 tons, Dongcai Science and Technology Innovation Center and production base projects (1, 2) in Chengdu 10,000 tons High-performance polyester base film project for MLCC and PCB, metallized film project for new energy capacitors with an annual output of 5,000 tons, and a high-performance resin and formaldehyde project with an annual output of 160,000 tons (partial conversion).

Actively explore epitaxial development paths to promote the collaborative development of industry and finance. In 23 years, the company fully integrated high-quality resources in industry frontiers, technology collaboration, channel operation, etc., and continued to explore epitaxial development paths such as joint ventures, strategic cooperation, mergers and acquisitions and restructuring. The company set up a joint venture with South Korea's Chemax and Chongyi Chemical in Chengdu, Sichuan to focus on the synthesis and purification of high-end photoresist materials, build an upstream and downstream collaborative industrial chain in the photoresist field to enhance the company's technology research and development capabilities; and jointly signed a “Strategic Cooperation Framework Agreement” with Shanjin Optoelectronics and Yangzhou Wanrun to accelerate domestic replacement projects for PET base films for polarizers and release films for polarizers to enhance the company's core competitiveness in the field of optical substrates and promote the stable and sustainable development of the company's core business.

Profit forecast, valuation and rating: Due to the slow recovery in downstream demand for the company's terminals, we lowered our 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 4.59 (down 29.3%)/6.11 (down 19.8%)/754 million yuan, respectively. The company is a leading insulation material company in China. In recent years, it has focused on developing a series of products such as optical film materials, electronic materials, and environmentally friendly flame retardant materials. Various products have achieved layout in the middle and high-end fields, and additional production capacity continues to be added. We are optimistic about the company's development prospects and maintain an “increase” rating.

Risk warning: There is a risk that production capacity implementation progress falls short of expectations, raw material prices fluctuate, and downstream demand falls short of expectations.