Incident: In 2023, the company achieved operating income of 4.872 billion yuan, a year-on-year decrease of 8.2%, realized net profit attributable to shareholders of listed companies - 229 million yuan, a year-on-year decrease of 556.29%, and realized deduction of non-net profit - 245 million yuan, a year-on-year decrease of 963.37%. 2024Q1 achieved operating income of 877 million yuan, a year-on-year decrease of 35.08%, realized net profit attributable to shareholders of listed companies of -19 million yuan, a year-on-year decrease of 182.83%, and realized deduction of non-net profit of -0.2 billion yuan, a year-on-year decrease of 192.01%.

The company's performance was under pressure, and profitability improved month-on-month. On a quarterly basis, the company's gross sales margin for 2023Q4 was -3.56%, the net sales margin was -16.61%, the 2024Q1 gross sales margin was 3.82%, and the net sales margin was -2.15%. Profitability improved month-on-month. Demand for photovoltaic film fluctuated repeatedly in 23 years due to industry factors. The price of EVA resin, the main raw material, also fluctuated sharply due to the expansion cycle, demand conduction, and short-term disturbances. As a result, the sales price and gross margin level of the film fluctuated accordingly. Coupled with the expansion of production capacity in the PV industry as a whole, the competitive pattern was severe. The gross margin of film was squeezed and raw material inventory depreciated significantly, leading to losses in the company's performance.

The production capacity of the company's adhesive film business has been steadily increasing and the international layout, and the supply capacity continues to increase. In '23, the company's plastic film expansion fund-raising projects in Pinghu, Zhejiang, and Beijiang, Vietnam progressed steadily. Among them, the Pinghu project has already been put into operation, and the Vietnam project is scheduled to be put into operation in the third quarter of 2024, and the overall supply capacity continues to increase. At the same time, in '23, the company launched a new packaging solution for battery modules, covering N-type TOPCON, EPE co-extruded film for HJT double-sided modules, as well as new products such as TOPCON single-glass EXP film and 0BB multi-category technical coating. The company broke through the international patent barrier for the core raw material of HJT translucent film to further enhance the stability and reliability of the translucent film. Adhesive film packaging products have fully welcomed the N-type era.

New materials for automobiles made breakthrough progress in 2023 and formed industrialization capabilities. The company focuses on the field of new materials for automobiles, innovating and developing environmentally friendly XPO artificial leather surface materials, which have advantages such as lower VOC emissions, safety and environmental protection, comfort and wear resistance, and have broad application prospects. The company has strategic cooperation with well-known international suppliers to jointly promote application scenarios such as car cockpit seats, instrument panels, and car door interiors. We obtained certification and an order for a new model from an overseas NEV company in '23, and now we can supply them in batches. Furthermore, good progress has been made in areas such as canopies and frameless car windows.

Investment advice: The company's photovoltaic film business shipments are growing steadily, and the new materials business continues to develop. The company's net profit for 2024-2026 is expected to be 0.56/1.02 billion yuan, corresponding to PE of 58X/32X/23X. Maintain a “buy” rating.

Risk warning: Industry competition increases risk, raw material price fluctuation risk, PV industry demand falls short of expectations.