Description of the event

Haiyou New Materials released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 4.872 billion yuan, a year-on-year decrease of 8%; net profit to mother of -229 million yuan, a year-on-year decrease of 556%; among them, 2023Q4 achieved revenue of 923 million yuan, a year-on-year decrease of 21%, a decrease of 40% month-on-month; and net profit to mother of -153 million yuan, a year-on-year decrease of 272%. 2024Q1 achieved revenue of 887 million yuan, a year-on-year decrease of 35% and a month-on-month decrease of 5%; net profit to mother was -0.19 million yuan, a year-on-year decrease of 183%, and an increase of 88% month-on-month.

Incident comments

In 2023, the company achieved annual sales of 550 million square meters of adhesive film, an increase of 29% over the previous year. Net profit loss is expected for the whole year (without taking into account impairment, same later). Among them, Q4 net profit is expected to be lost. At the same time, due to falling particle prices, the company incurred asset impairment losses of 90 million yuan. The company's 2023 performance is under pressure, mainly due to the deterioration of the competitive landscape in the adhesive film sector. In this context, the company actively adjusted its strategy, lean production, accelerated inventory turnover, accelerated the launch of new products, and focused on laying out the new materials business for automobiles, and made certain progress.

2024Q1, the company's adhesive film sales are expected to remain flat month-on-month, with the company close to full production in March. The Q1 gross profit margin was 3.8%, up 7.4 pct from month to month. It is expected that the net profit and loss margin of a single ping will narrow month-on-month. Q1 Particle prices showed an upward trend, and adhesive film also followed suit at the end of February, so profitability has recovered. At the end of Q1, the company's inventory was 640 million, down 12.5% from the previous month, and was already down more than 50% from the 2022 H2 high; notes receivable and accounts receivable were 2.19 billion, down 6.5% from the previous month, all reflecting the company's faster turnover, reducing the use of operating capital, and ensuring the safety of the company's capital chain.

Looking ahead, we believe that in the context of fierce competition in the adhesive film industry, the company's profitability is expected to gradually recover from the difficult situation starting in Q2 with the optimization of product structure, cost control, and production capacity layout in Southeast Asia. At the same time, the company began to lay out businesses such as automotive smart glass film materials, XPO artificial leather surface materials, and glass adhesive films. At present, progress is quite smooth. Among them, XPO artificial leather surface materials have cooperated with Dow to obtain certification and orders for new models from an overseas NEV company, and batch delivery has been achieved. We expect these businesses to contribute revenue and bring new performance growth points in 2024-2025.

We expect the company to achieve profits of 0.7 million yuan and 230 million yuan respectively in 2024-2025, corresponding to PE 47 and 14 times. Maintain a “buy” rating.

Risk warning

1. Deterioration of the competitive landscape;

2. PV installation falls short of expectations.