Description of the event

Sanlipo announced its 2024 quarterly report. During the reporting period, the company achieved operating income of 542 million yuan, an increase of 27.45%; realized net profit to mother of 0.31 million yuan, an increase of 151.55%; and realized net profit after deduction of 36 million yuan, an increase of 883.58% over the previous year.

Incident comments

In the first quarter, the company achieved the same revenue volume as the Q3 peak season in 2023 under the demand environment where the operating rate of downstream panel manufacturers declined during the off-season, reflecting a significant increase in share. Mainly due to a shortage of upstream materials, the company completed order transfers with sufficient inventory and maintained a high capacity utilization rate.

On the cost side, the sales expense ratio was 0.68%, up 0.07 pct year on year and 0.17 pct month on month; management cost ratio was 3.93%, up 0.38 pct year on year, up 2.08 pct month on month; R&D cost rate 6.60%, 0.41 pct less year on year, 0.99 pct less month on month; financial cost ratio -1.56%, down 2.49 pct year on year and 4.44 pct month on month. Among them, the increase in management expenses was mainly due to an increase in managers' wages, welfare expenses, and rent, while the decrease in financial expenses was mainly due to exchange gains due to the depreciation of the yen. In addition, during the reporting period, the company accrued credit impairment losses of 6.03 million yuan due to bad accounts receivable.

In terms of new products, the company's Hefei Phase II TV polarizer production capacity project is expected to be put into operation within the year. Its 1,720mm wide polarizer can cover a 65-inch high-efficiency cutting scheme, which is expected to improve the current low gross margin level of the company's TV polarizers. In addition, the company has also made a breakthrough in high-value-added OLED polarizers, and has become the first domestic enterprise to enter small-batch supply to clients. We expect the company's profitability to improve further in 2025 after the launch of the two major new products.

We believe that since the panel industry chain entered a downward cycle in 2021, when downstream panel manufacturing profits were under pressure, upstream materials were also under obvious price reduction pressure. However, with the restoration of the post-production price center in 2024 and the reduction of depreciation costs, the profitability of polarizers is expected to be repaired in the long term. The company's 2024-2026 EPS is expected to be 0.93, 1.99, and 2.69, and the corresponding PE is 27.16, 12.71, and 9.41, respectively.

Risk warning

1. Consumer electronics recovery falls short of expectations;

2. New product release progress falls short of expectations.