Description of the event

The company achieved revenue of 1.26 billion yuan, a year-on-year decrease of 0.5%; realized attributable net profit of 0.14 million, a year-on-year decrease of 54.8%; realized deducted net profit loss of 31 million yuan, an increase of 77.3% over the previous year.

Incident comments

Q1 Revenue declined and gross margin increased. Q1 revenue fell 0.5% year on year, which is expected to be affected by weak consumer electronics demand; the gross profit margin for the current period was 14.3%, up 1.4 pcts year over year, or mainly contributing to the purification of high-purity quartz sand; the rate during the Q1 period was 15.2%, up 1.9 pcts year on year, of which the R&D rate increased 2.3 pcts, mainly due to the continuous technological innovation of the company's two major business segments, especially the display sector to enhance the core competitiveness of products and increase investment in R&D. Other revenue increased by 12.58 million over the same period last year due to increased government subsidies; in the same period last year, disposal showed that the sector achieved asset disposal revenue of 24.13 million yuan, which was almost none in the current period. In the end, the net vested interest rate was 1.1%, a year-on-year decrease of 1.3 pcts.

Applied materials continue to break through. The company's spherical materials are in strong market demand in the fields of copper clad plates, packaging materials, and new energy batteries, and sales increased 85% year over year; nano zirconia has been introduced into many leading ternary lithium battery companies in the new energy field, and the products have been widely used; high-purity ultrafine spherical silicon dioxide and polishing liquid for semiconductor packaging have been verified by domestic and foreign customers; polishing powder has a market share of over 40% in the LCD industry; and the construction of synthetic high-purity quartz sand production lines is also underway.

Display materials continue to enhance the advantages of the industrial chain. UTG has entered a “rising period” in the industry, showing that modules are developing “big customers” in the market.

The UTG Phase II project plant has been completed and has a production capacity scale. It has introduced many customer resource pools such as well-known downstream panel companies and terminal manufacturers. At the same time, it is also actively exploring layouts in cutting-edge fields such as in-vehicle displays, large-screen curved displays, and smart wearables. The display module successfully entered the supply chain of international “big customers” such as LGD and Samsung, accelerated the AG glass project, increased business expansion efforts in automotive projects and segments such as IOT, central control, and medical care, and achieved penetration of the LED display business into the transportation industry.

Incentives are implemented, and growth expectations are strengthened. The company announced the 2023 equity incentive plan (draft): Targeted additional shares will be distributed to incentive recipients in the form of stock options. A total of 18.11 million shares will be awarded, accounting for 1.92% of the total share capital. Of these, 16.3 million shares will be awarded for the first time, accounting for 1.73%. The main incentive target was a total of 195 directors, supervisors and core business executives, and the award price was 12.59 yuan/share (current price is 12.57 yuan). The incentive period is 2024-2026, and the unlocking conditions include net profit, ROE, and improved economic value added for the current year. Among them, the net profit deducted for 2024-2026 according to the compound growth rate was $180, 2.59, and 300 million, respectively.

Investment advice: Expect the company's new materials business category expansion and UTG cover release. Net profit of 2024 and 2025 is estimated to be 220 million or 290 million, corresponding to PE 48 or 38 times, maintaining the purchase rating.

Risk warning

1. Demand for consumer electronics continues to be sluggish;

2. Low expectations for the new material production line to be put into operation.