Incident: On August 16, 2024, the company released its 2024 semi-annual report, achieving revenue of 0.693 billion yuan, +12.57% YoY; net profit to mother 0.095 billion yuan, +63.53% YoY; net profit after deducting 0.087 billion yuan, or +69.05% YoY. Among them, Q2 achieved revenue of 0.365 billion yuan in a single quarter, +6.80% YoY, +11.33%; net profit to mother 0.061 billion yuan, +37.90% YoY, +77.64% month-on-month; net profit before deducting 0.056 billion yuan, +35.45% YoY and +75.65% month-on-month.

Demand for OLED materials has picked up, and the display materials sector has seen significant year-on-year growth: the rebound in demand and the rapid development of folding screen phones drove a marked increase in smartphone shipments in the first half of the year, representing a 6% year-on-year increase in the second quarter of 2024. In the first half of 2024, OLED screen smartphone shipments increased by about 43% year on year, surpassing LCD for the first time. The share of smartphone screen shipments from Chinese OLED manufacturers surpassed that of Korean manufacturers. With long-term and stable partnerships with downstream manufacturers, including Merck, JNC, Dupont, Idemitsu, Doosan, SFC, LG Chemical, etc., the display materials sector's revenue reached 0.665 billion yuan in the first half of 2024, a significant increase of +30.18% over the same period last year.

Foreign investment promotes business development and introduces a stable shareholding structure for state-owned shareholders: The company cooperated with Idemitsu Japan, a global giant in OLED light-emitting materials, to increase the capital of optoelectronics with its own capital. After the capital increase is completed, the company will hold 20% of the shares in optoelectronics. Idemitsu Electronics is the only OLED light-emitting material manufacturing base established by Idemitsu Japan. After the transaction was completed, it helped the company establish a deeper strategic partnership with the customer. At the same time, the company signed a “Share Subscription Agreement with Effective Conditions” with the Development Investment Group on 2024.5.10. After the transfer of the agreement and delegation of voting rights is completed, the Kai Investment Group holds 23.81% of the company's voting rights and will become the company's controlling shareholder. The Qingdao West Coast New Area State-owned Assets Administration Bureau, as the actual controller of the KAI Group, will also become the actual controller of the company at that time.

Investment advice: The company is an important domestic display materials enterprise. It has a deep technical accumulation and is gradually expanding into the fields of pharmaceutical CDMO and electronic chemicals to create incremental growth. We expect the company to achieve operating income of 1.532/1.762/2.048 billion yuan and net profit to mother of 0.209/0.275/0.327 billion yuan in 2024-2026, corresponding PE of 17.47/13.29/11.16 times, respectively, to maintain the “gain” rating.

Risk warning: demand falls short of expected risk; product verification progress falls short of expected risk; new construction project commissioning time falls short of expected risk