The 2023 results are lower than market expectations. 1Q24 results are in line with our expectations: 2023 revenue of RMB 4.166 billion, +1.2% year on year; net profit to mother of RMB 104 million, YoY -9.5%, corresponding to earnings per share of 0.24 yuan. The 23-year results were lower than market expectations, and the profitability of the main adhesive film business declined; 1Q24 achieved revenue of 885 million yuan, -14.93%, or +7.27% month-on-month; net profit to mother of RMB 29 million, YoY- 13.98%, +55.54% month-on-month, the performance was in line with our expectations.

Development trends

In 2023, the PV business volume trend is clearly increasing, and film profits are under pressure. In the adhesive film business, the company's adhesive film shipments increased dramatically in 2023, with sales volume of 270 million square meters, +58% year over year, 1Q24 sales volume of 0.69 million square meters, +11% year over month, but gross margin dropped sharply. The gross margin of adhesive film in 2023 was 6.44%, -1.3ppt year on year. The main reason was the reduction in film prices due to increased industry competition. The average price of adhesive film in 2023 was 9.16 yuan/ping. -26.99%, 4Q23/1Q24, the average sales price of adhesive film was 8.55/7.61 yuan/ping, respectively. Compared to -24%/-19%, the price of raw material particles fluctuates greatly, and the mismatch between cost and price reduction time has led to poor film profits. After the Spring Festival this year, we benefited from better demand for downstream components. Although the price of adhesive film has rebounded, the overall average price of 1Q24 is still low. We expect a profit recovery in the company's adhesive film business this year for two reasons: 1) The company's production expansion is accelerated, and the current production capacity is 400 million square meters. The company plans to start production of Vietnam's 10GW adhesive film production capacity in the middle of this year, and the first phase of 6GW production capacity in Xuancheng, Anhui will be launched this year. The company's production capacity expansion follows a differentiated path, which can effectively avoid homogenized competition; 2) We believe that the increase in the share of profitable products such as phototransfer film, Plant To adhesive film, and TPO thermoplastic film is expected to drive profitable repair of adhesive film in '23. Reached 26.62 million square meters, customer Covering major HJT manufacturers around the world. In the backplane business, the sales volume in 2023 was 130 million square meters, the unit price was 9.07 yuan/square meter, -21.68% year over year, 1Q24 sales volume was 27.26 million square meters, -33.07% YoY, +27.82% month-on-month, and the unit price was 8.27 yuan/square meter, -9.22% YoY. Although the unit price of the backboard has declined, the cost PVDF price has dropped significantly, and the company optimized the backboard product structure. Shipments of the new backboard were 55 million square meters, an increase of 30% over the previous year, accounting for 42% of the total backboard shipments. Many factors ensured that the profit of the company's backboard products was steady. The gross margin for 23 years was 15.78%, +0.43ppt year over year. In the other materials business, the company is committed to becoming a platform-based materials enterprise, adhering to innovative products. In 23, products such as CSS hot press film and cell blue film were introduced and sold, and Q3/Q4 achieved gross profit margins of 12.44%/22.99% respectively. We are optimistic that the release of other materials will drive profit recovery in 24 years.

Profit forecasting and valuation

Since film prices are still at the bottom, we lowered our 2024 performance forecast by 19% to 210 million yuan, and introduced a 2025 performance forecast of 340 million yuan for the first time. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and an upward shift in the PV auxiliary materials sector's valuation center, we lowered our target price by 11% to 16.5 yuan, corresponding to a price-earnings ratio of 35/21 times 2024/2025. There is 37% room to rise compared to the current stock price. The current stock price corresponds to 26/16x P/E in 2024/2025.

risks

The risk of raw material price fluctuations, the risk that downstream demand falls short of expectations, and industry competition exacerbates risks.