Incident: The company released a quarterly report. The revenue for 1Q24 was 67 million yuan, a year-on-year decline. The main reason was that the company adopted a series of measures such as volume control and price increases for ordinary electronic copper foil to deal with losses. Net profit for a single quarter was 140,000 yuan, and losses improved to a certain extent from month to month.
Electromagnetic shielding film: Despite poor demand momentum in the mobile phone industry, the price of related components is still in a downward channel. We believe that under the influence of product structure improvements and breakthroughs from major customers, the unit price and profit level of the company's electromagnetic shielding film business will remain relatively stable.
On the one hand, the company broke the overseas monopoly of high-end electromagnetic shielding films, and sales of high-end products (USB3 series) increased by more than 100% year-on-year in 2023. On the other hand, the company's major overseas customers are progressing smoothly. We estimate that in 2022, major overseas customers will account for about 46% of the mobile phone electromagnetic shielding film market, and the company may start introducing products in 2024. At the same time, we see the emergence of new application scenarios for electromagnetic shielding films in industries such as ARVR and new energy vehicles, and that future AI phones require higher performance requirements for electromagnetic shielding films, and the industry still has growth momentum in the future.
Relying on technology platforms, new products go hand in hand: The company has developed a series of new products such as peelable copper foil, PET copper foil, FCCL, and thin film resistors by relying on four basic technology platforms, including vacuum coating, precision coating, electrochemistry, and formula synthesis. We believe that the company will gradually enter the harvest period in the second half of the year, and product release is expected to begin to accelerate. According to the company's annual report, various product lines are progressing smoothly. Among them (1) peelable copper has passed the certification of some carrier board manufacturers and terminals, and small-batch shipments began in 3Q23; (2) FCCL has entered the small-batch mass production stage, and ultra-thin FCCL has promoted customer certification in an orderly manner and has received small-batch orders; (3) Some customers of thin film resistors have basically completed factory audits and have received small-batch orders; (4) PET copper foil has already received small orders in the communications field.
Valuation and suggestions: The company's layout materials do not directly target companies in A-shares. We recommend comparing the valuation levels of semiconductor material manufacturers. However, since it still takes time to release new products, we lowered the company's net profit forecast for 24/2025 to 0.01/144 million yuan (original forecast 75 million/263 million yuan) and gave the company 25x 2025 PE (in line with the previous valuation level).
Corresponding to the target price of 45 yuan (original target price 68 yuan, -34%), maintaining the “superior to the market” rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Continued rise in copper prices impacts profitability; 4) Production capacity release falls short of expectations.