Report summary:

Electronic composite functional materials have high profitability. Electronic composite functional materials are the company's main products, and adhesive tape is one of them. Adhesive tape products are mainly composed of substrates, glue coatings, and release materials, and have a double or multi-layer structure. Initially, they were used in various industrial settings as an alternative to traditional mechanical fixing methods such as welding, riveting, and bolts due to their significant advantages such as low cost and high aesthetics. Therefore, traditional adhesive tape products have basic functions such as connection, fixing, protection, and sealing. With the advent of new applications and market demand, adhesive tape products have begun to develop various composite functions such as waterproof, conductive shielding, acid and alkali resistance, and high temperature resistance. Electronic composite functional materials account for 80% of the company's revenue, and the gross margin has been above 60% for 7 consecutive years.

Electronic adhesives are expected to be put into production within the year. The company accelerates the layout and development of new products and new businesses. In 2023, the company raised a total capital of 390 million yuan, of which 300 million yuan was used for the construction of the company's new high-efficiency sealant project. The construction of a new high-efficiency sealant project is progressing smoothly and is expected to be put into operation in 2024. The layout of an efficient sealant project helps the company to optimize its business structure, achieve business expansion in various fields from functional composites to adhesives, from the consumer electronics field to new energy vehicles, automotive electronics, etc., and comprehensively enhance the competitiveness of the enterprise.

Production capacity for optoelectronic materials continues to expand. The company's optoelectronic materials mainly include optoelectronic display modules and optical films. In the first half of 2023, the new optical film production line was successfully put into operation, and the optical film used in polarizers has been certified and mass-produced and sold by the new customer Shanjin Optoelectronics. The second optical film high-speed line will enter trial production in 2024, and the share of optical material revenue will continue to increase in the future.

The company is vigorously strengthening innovation capacity building. The company focuses on independent R&D and technological innovation, and actively enriches the company's core technical reserves. The company uses Shanghai Shichen as the innovation center and R&D engine to continuously promote the company's technological innovation and provide services to leading customers around the world through this innovative platform. The company has established a multi-level R&D team. The team has long been committed to cutting-edge technology research and innovation, and has rich practical experience in materials science to ensure that the company has industry-leading competitiveness in the R&D and design of polymer functional coatings.

Profit forecast and investment advice: The estimated revenue for 2024-2026 is $677/10.4/1,473 million yuan, respectively, and net profit to mother is 2.51/3.35/476 million yuan, respectively, covering the “buy” rating for the first time.

Risk warning: Demand for consumer electronics fell short of expectations; production of electronic adhesives and optical films fell short of expectations.