Kaisheng Technology: Kaisheng Group Display and Applied Materials Platform
Established in 2000 and listed on the Shanghai Stock Exchange in 2002, the company is an important platform for the development and industrial application of display materials and applied materials under China Building Materials Group Kaisheng Group. In December 2023, the company launched a stock options incentive plan (draft). The company's net profit assessment targets for 2024-2026 were 1.89, 2.70, and 314 million yuan, respectively. The assessment targets were high net profit deducted from non-return to mother (corresponding to the CAGR of 37.1% of the company's net profit withheld from 2021 to 2026). It is expected that the company's new business UTG and high-purity quartz sand will contribute to profit growth.
Display materials: UTG is an integrated leader, embracing the “folding screen era”. In November 2015, the company acquired 75.58% of Shenzhen Guoxian Technology's shares and officially entered the LCD module field. Since then, Shenzhen Guoxian has become the company's main revenue. The LCD module business is looking forward to a recovery in downstream demand.
(1) Folding screens have entered a period of rapid penetration. Global folding screen mobile phone shipments will increase from 13.1 million units in 2022 to 101.5 million units in 2027, with a CAGR of 50.6%. Domestic brands are being promoted faster and the market growth rate is higher. We expect intensive catalysis for new folding machine models. (2) UTG has become the mainstream application direction for folding screen covers, and the share of UTG usage in folding screen smartphones in China has risen from 13% in 2020 to nearly 70% in 2023. (3) The company has obvious advantages in integrating the original film, and the second phase of production capacity is gradually being released. The barriers to entry into the UTG industry chain are mainly reflected in the development of original film technology. The 30-micron UTG independently developed by the company is the only nationally produced ultra-thin flexible glass industry chain covering “high-strength glass - ultra-thin thinning - high-precision post-processing” in China. Part of the production line with a production capacity of 15 million pieces/year in phase II has entered the online commissioning state. Q2 has trial production conditions. According to the existing yield level and 6.9 inch production capacity equivalent to the same caliber, it is expected to reach half of the planned production capacity of the project.
Applied materials: Based on zirconium products, the amount of new materials with high added value is around the three elements of zirconium, silicon, and titanium. Based on zirconium products, such as fused zirconium oxide, zirconium silicate, stabilized zirconium, etc., the product range was expanded on this basis, such as spherical quartz powder, high-purity synthetic silicon dioxide, nano barium titanate, rare earth polishing powder, etc. The company's applied materials segment revenue reached 15% CAGR in 2014-2023. (1) Zirconium series: The revenue volume is over 1 billion, and the release of high-value-added nanocomposite zirconia is expected. The main products are fused zirconia and zirconium silicate. Nanocomposite zirconia can be used as a solid state battery electrolyte and doping material for solid fuel cells. (2) Silicon series: Focus on the progress of photovoltaic crucibles and semiconductor emissions. The production capacity of spherical silicon powder has increased net profit. Focus on AI catalyzing the demand for low-α spherical silicon and aluminum. The high-purity silicon dioxide purification method uses photovoltaic crucibles and synthesis methods to apply semiconductors. (3) Titanium series: MLCC core preparation material, domestic replacement space is broad. Kaisheng Technology is the second domestic company to master hydrothermal technology for preparing nano barium titanate. It currently has a production capacity of 2,000 tons/year.
Investment suggestions: We are optimistic about the company ① the domestic UTG integrated leader, the second-phase production capacity release embraces the folding screen era, ② the applied materials sector is based on zirconium products, and the release of new high-value-added materials is imminent; ③ Kaisheng Group's display and applied materials platform, stock options incentive assessment deducts a high increase in net profit. We expect the company's net profit to be 226, 3.08, and 396 million yuan in 2024-2026, respectively. The dynamic PE corresponding to the current price is 43x, 32x, and 24x, respectively, covered for the first time, and given a “recommended” rating.
Risk warning: UTG's progress falls short of expectations; applied materials projects fall short of expectations; risk of declining consumer electronics demand.