24Q1 revenue/net profit to mother was -12.2%/-47.7%, maintaining the “purchase” rating. The 24Q1 company achieved revenue/net profit attributable to mother of 44.3/2.2/110 million yuan, -12.2%/-47.7%/-70.8% (adjusted). The year-on-year decline in glass fiber and lithium film prices affected the company's profit.
The glass fiber industry began raising prices at the end of March, and the second price increase in April was gradually implemented. At the same time, demand for wind power installations continued to increase. We expect Q2's profitability to improve month-on-month. We maintain the 24-26 EPS forecast of 1.44/171/197 million yuan. Comparable wind power glass fiber/diaphragm company Wind unanimously anticipated an average PE value of 14.5x/14.1x in 24, with a segmented valuation target market value of 35.3 billion yuan (net profit of 1.57 billion wind power blades and glass fiber in 24 years, 15 xPE, because the company's glass fiber and blade cost reduction effect was good; 84 billion diaphragms and hydrogen bottles gave 14xPE), with a target price of 21.10 yuan to maintain “purchase”.
Prices of glass fiber and lithium film continued to decline, 24Q1 gross margin was still under pressure on 24Q1's gross profit margin of 19.4%, -8.6/-5.8pct month-on-month. The continued decline in glass fiber prices was the main reason affecting the company's profitability. According to Zhuochuang Information, the average price of 24Q1 glass fiber wrapped direct yarn/SMC bonded yarn/G75 electronic yarn was -26%/-19%/-18%, and -6%/-1%/-7% month-on-month, while 24Q1 had a 50,000 ton cold production line Production and sales are expected to drop slightly year over year. In terms of lithium film, according to Xinyi information, the average price of 7μm wet diaphragms in China was 1.07 yuan/square meter in 24Q1, the price drop was significant. However, the increase in sales volume and cost decline brought about by the expansion of the company's production capacity is expected to hedge price pressure to a certain extent. By the end of 23, the company already had 4 billion square meters of base film production capacity, and lithium film sales increased sequentially from quarter to quarter in '23. We expect 24Q1's lithium film sales to continue growing rapidly year on year.
The cost rate increased slightly during the period. The increase in government subsidies affected the non-return net interest rate of the 24Q1 company's expenses rate of 14.7%, +0.6pct year-on-year. Among them, the sales/management/R&D/finance expenses ratio was 1.5%/6.4%/4.6%/2.1%, +0.2/+1.0/-0.8/+0.2pct year-on-year, with the exception of the R&D expenses rate. The 24Q1 net interest rate/net interest rate of non-return to mother of the company was 4.9%/2.4%, -5.0/-6.3pct compared to the previous year. The net interest rate without deduction declined more, mainly due to higher government subsidies in 24Q1. 24Q1's net operating cash flow was 1.76 billion yuan, a year-on-year period of -630 million yuan, mainly due to a decline in revenue.
Price increases for glass fiber are gradually being implemented, and all three business segments are expected to rise steadily. According to Zhuochuang Information, as of the end of March '24, the domestic sample inventory of glass fiber yarn was 794,000 tons, or 112,000 tons month-on-month. Inventory declined markedly, driven by improvements in supply and demand and price increases. Price increases in the glass fiber industry gradually came to fruition in April. As of April 25, the average price of 2,400 tex wound direct yarn nationwide was 3506 yuan/ton, +5.5% from week to week. The price increase is expected to drive a significant recovery in the profitability of the company's Q2 glass fiber business. In the wind power sector, according to the National Energy Administration, the country added 16 GW of installed capacity in 24Q1, +49% over the same period last year. Continued high growth in installed capacity is expected to drive the company's blade demand and sales growth. In the lithium film sector, the company continues to push forward the release of new production capacity and customer/product restructuring. We expect the company's lithium film production capacity to reach 6 billion square meters by the end of 24, and the steady rise in all three business segments is expected to drive the company's size and profit growth.
Risk warning: The new installed capacity of wind power falls short of expectations; the supply and demand of glass fiber continues to deteriorate; and the price of lithium film falls.