Key points of investment:
The company released its 2023 annual report: During the reporting period, the company achieved revenue of 1,969 million yuan (YoY +5%), net profit attributable to mother of 0.56 million yuan (YoY -67%), net profit margin of 0.4 billion yuan (YoY -72%), gross sales margin of 27.25% (YOY-2.44pct), net profit margin 2.85% (YOY-6.05pct), sales, management and financial expenses ratio of 15.04% (YOY+2.33pct), R&D expenses increased 55% year-on-year to 197 million yuan The cost rate reached 10.02%. Among them, 23Q4 achieved revenue of 461 million yuan in a single quarter (YoY +77%, QoQ -13%), net profit loss of 28 million yuan, and net profit loss of 21 million yuan after deducting non-return to mother. The results for the single quarter fell short of expectations.
In 23Q4, the company's gross sales margin was 24.67%, with year-on-month changes of -9.69pct and -4.80pct, net profit margin -6.13%, and year-on-month changes of -6.04pct and -9.87pct, respectively. In terms of expenses, 23Q4 sales, management, finance, and R&D expenses were 0.20, 0.46, 0.40, and 0.58 billion yuan, respectively. The month-on-month changes were +0.01, +0.09, -0.12, and +0.26 billion yuan. At the same time, the company calculated asset impairment losses of 0.13 billion yuan. 2023 Company Profit Distribution Plan: It is proposed to distribute cash dividends of RMB 0.20 (tax included) for every 10 shares.
The company released its 2024 quarterly report: During the reporting period, the company achieved revenue of 664 million yuan (YoY +37%, QoQ +44%), realized net profit attributable to mother of 0.19 million yuan (YoY -8%, QoQ +166%), realized net profit without return to mother of 0.05 billion yuan (YoY -67%, QoQ +124%), gross sales margin of 21.04%, with year-on-month changes of -3.93pct and -3.63pct, respectively, a net profit margin of 2.81%, year-on-month change of 2.37pct, +8.94pct. In terms of expenses, there was some improvement in 24Q1, but the company's accrued assets and credit impairment losses totaled 15 million yuan, causing a certain drag on performance.
Downstream demand was still weak in '23, R&D expenses increased dramatically, and the combination of factors dragged down performance; 24Q1 revenue side grew significantly, profit side gradually recovered, and short-term R&D and depreciation pressure was still strong. In 2023, global consumer electronics shipments were under pressure, and competition for new energy vehicle electronics was intense. According to the company's 2023 annual report data, the company's electronic grade adhesive materials achieved revenue of 859 million yuan (YoY +2%), gross profit margin of 45.48% (YoY 1.98pct); functional film materials achieved revenue of 527 million yuan (YoY +17%) and gross profit margin of 23.13% (YoY+3.63pct); film packaging materials achieved revenue of 405 million yuan (YoY -14%) and gross profit margin of 1.34% (YoY- 9.58pct).
The company's profit declined significantly in 2023. The main reasons: 1) major construction projects such as OCA optical adhesives, precision release film, glue supply system technology transformation, and PET optical film project line 2 were converted one after another, and depreciation costs rose sharply; 2) the project changed from the construction period to the operation period, and some loan expenses were converted from capitalization to cost, and financial expenses increased dramatically year on year; 3) R&D expenses and labor costs increased sharply year on year.
Since 2024, with the gradual expansion of the company's optical, new energy and other functional adhesive business, the company's revenue has improved significantly from month to month, but continued high R&D investment and the impact of depreciation expenses have put a lot of pressure on the release of profits. As of the first quarter report of 2024, the company's fixed assets were 3,588 billion yuan, an increase of 1,587 billion yuan over 23Q1, and 971 million yuan in ongoing projects, down 1,229 million yuan from 23Q1.
Accelerate vertical industrial chain integration, accelerate the construction of optical substrates and the transformation of glue supply systems; expand production capacity for middle and high-end products, optimize the product structure, and be optimistic about the company's accelerated release of OCA optical films and new energy materials. The company is a leading functional coating composite material platform enterprise in China. In 2023, the company accelerated the construction of 2-line optical substrates and the technical transformation of adhesive supply systems, and began use in the second half of 2023. Through continuous layout of the vertical industrial chain, the company continuously improved the self-production ratio of optical substrates and adhesives to achieve collaborative development of adhesives and films. Judging from the company's product structure, functional film materials and electronic-grade adhesive materials are the company's core products and the company's main source of profit. In terms of OCA film, the company has achieved breakthroughs in some terminal brands. New folding models such as the Huawei Mate X5 and Honor Magic Vs2 all use the company's products. At the same time, the company is actively entering the repair market and white label market. The panel manufacturer's verification work is also progressing in an orderly manner, laying the foundation for the next step, and will take the lead in sharing the broad domestic alternative market. In addition, new energy materials are also an important direction for the company's development. Currently, the company has developed business cooperation with some NEV and battery manufacturers to supply related insulation materials.
Investment analysis opinion: The company continues to increase investment in R&D, and the successive consolidation of projects under construction has brought pressure on depreciation and amortization expenses. The company's 2024-2025 net profit forecast was reduced to 1.58 and 291 million yuan (original values were 3.29 million yuan, 544 million yuan), and the net profit forecast for 2026 was 446 million yuan. The company's integrated layout has advantages. The company's 24-26 profit is expected to match the 69% growth rate. PEG's valuation in '24 was 0.35X, and the valuation premium brought about by the company's future growth is still not fully reflected, maintaining an “gain” rating.
Risk warning: 1) Demand for terminals such as consumer electronics fell short of expectations; 2) the introduction of new products such as OCA film fell short of expectations; 3) The supply and price of raw materials fluctuated greatly; 4) The company received a regulatory letter from the Shenzhen Stock Exchange on March 27, 2023, which specifically alerted attention.