Changyang Technology released its 2023 annual report and 2024 quarterly report: In 2023, the company achieved revenue of 1,253 billion yuan, an increase of 8.70% over the previous year; realized net profit of 95.423 million yuan, a year-on-year decrease of 15.88%; and realized net profit of 56.8518 million yuan after deduction, a year-on-year decrease of 40.73%. In the first quarter of 2024, the company achieved revenue of 314 million yuan, a year-on-year increase of 25.08%; realized net profit of 8.2328 million yuan, a year-on-year decrease of 66.97%; realized net profit after deduction of 6.3277 million yuan, a year-on-year decrease of 57.17%.

Key points of investment

Profits are under pressure in the short term, and project production capacity will gradually be released starting in Q1

Total shipments of global TV brands declined year on year in 2023. The industry is in a downward cycle, but the large size trend continues to deepen. The company's market share in the full-size field of reflective films increased steadily, achieving revenue of 1,253 billion yuan, an increase of 8.70% over the previous year. Due to the company's overall dry diaphragm and other projects still in the construction phase, production capacity has yet to be released, and the impact of the supply and demand structure of the optical substrate film market, the profit side is under pressure in the short term.

In Q1 2024, the company's revenue grew at an accelerated pace, mainly due to the increase in sales revenue of reflective films and the beginning of the release of diaphragms and adhesive film products. Production capacity for projects such as diaphragms has not been fully released, and there are still losses. It is expected that profits will be repaired after the gradual release of products such as diaphragms.

The reflective film business performed steadily, and optical substrate and lithium battery diaphragm projects opened up room for growth

Despite the current slowdown in global economic growth and weak demand in the consumer electronics industry, the company's reflective film business market share is still the number one in the world and is steadily increasing. In 2023, the company's reflective film gross margin was 37.63%, an increase of 2.76 percentage points over the previous year. By reducing manufacturing costs and increasing the shipment of high-value-added products to increase profit margins, profitability increased significantly. The company is also continuously deepening product development in response to demand for miniLED reflective films, reflective films for small to medium sizes, and blister reflective films, and continuously increasing shipments and gross profit margins. The company actively lays out the optical substrate business and lithium battery diaphragm business with higher barriers. Currently, dry diaphragm production capacity has been actively and steadily expanded, and a new lithium-ion battery separator project with an annual output of 400 million square meters for energy storage and power vehicles and a photovoltaic film project with an annual output of 20 million square meters has been built in Zhoushan. Among them, the photovoltaic film project has completed product development and verification, and achieved batch delivery, which is expected to contribute to the core increase in the company's future performance.

CPI film development process accelerates and actively lays out the folding screen mobile phone market

Colorless transparent polyimide film (CPI) is widely used in the manufacture of flexible optoelectronic display devices, such as flexible display covers, flexible display device substrates, thin-film solar cells, etc. Folding screen phones are the most important application scenario for CPI films.

According to iResearch's report, folding screen sales have shown a rapid upward trend in recent years. Shipments of folding screen phones in China increased 69.1% year-on-year in 2023, and are expected to maintain rapid growth in 2024-2025. As folding screen mobile phone shipments and penetration rates continue to grow rapidly, the CPI film business is expected to stimulate new potential for the company's growth. Since CPI film is a high value-added product and the barriers are high, currently only a few Japanese and Korean companies, such as KOLON in Korea, have the supply capacity, and the company is expected to become the first company in China to prepare large-scale mass production capacity for CPI films for flexible displays. The company plans to invest 302 million yuan to build a colorless transparent polyimide film project with an annual output of 1 million square meters through its wholly-owned subsidiary Zhejiang Changyang Technology Co., Ltd., which is expected to break through the overseas monopoly on CPI film, become the first domestic enterprise to achieve large-scale mass production of CPI films, and enhance its core competitiveness.

Profit forecasting

It is predicted that the company's revenue for 2024-2026 will be 1,706, 20.63 billion yuan, and the EPS will be 0.50, 0.64, and 0.79 yuan respectively. The current stock price is 26, 20, and 16 times PE, respectively. Considering the company's leading position in the reflective film field and the development prospects of new projects, it was covered for the first time, giving it a “buy” investment rating.

Risk warning

Macroeconomic fluctuation risk, raw material price fluctuation risk, risk of project construction results falling short of expectations, increased risk of market competition, etc.