Core views

The company released its 2024 mid-year report. During the reporting period, the company's revenue was 107.6.4 billion yuan, and net profit to mother was 0.928 billion yuan. Of these, Q2 achieved operating income of 54.4.2 billion yuan and net profit to mother of 0.407 billion yuan in a single quarter. Q2 The company's plastic film gross margin bucked the trend and increased month-on-month, mainly due to an increase in the revenue share of overseas customers. Overseas customers have more customized demand, remarkable products, and the company's technical advantages are reflected. Q2 The company's electronic material shipments grew rapidly. Shipments in the first half of the year increased by more than 30% year-on-year. The company has already entered many mainstream PCB customers, and large orders are expected to be released in the future. As AI applications advance and the penetration rate of high-end materials increases, the profit margin for electronic materials is expected to be broad. Q2 The company was cautious about collective impairment losses and strengthened payment collection efforts. Q2 cash flow has been corrected. Currently, the company has sufficient cash on hand, and there is plenty of room for equity and debt financing. It has a clear advantage over friends and merchants in terms of financial strength, and is expected to be able to cross the cycle.

occurrences

The company released its 2024 mid-year report. The company's revenue during the reporting period was 107.6.4 billion yuan, up 1.39% year on year, and net profit to mother was 0.928 billion yuan, up 4.95% year on year; 2024Q2 company revenue for the single quarter was 5.442 billion yuan, down 4.57% year on year, up 2.27% month on month, and net profit to mother was 0.407 billion yuan, down 21.79% year on year and 21.97% month on month.

Brief review

Overseas customer share increased + product differentiation, Q2 film gross margin bucked the trend and increased month-on-month, and the leading advantage was highlighted. Since May, prices for particles and adhesives have continued to drop due to declining component production schedules. Previously, the market was worried that Q2's film profitability was under pressure, but Q2's comprehensive gross profit margin was 18%, up 2.7% month-on-month, mainly due to the fact that many overseas countries and regions are currently preparing to build localized production capacity, so the company's share of overseas revenue has increased, and overseas customers have relatively high customized demand, so the gross margin is higher than traditional categories.

Shipments of electronic materials are growing rapidly, and a second growth curve is gradually taking shape. Q2 The company's electronic materials shipments increased 30% month-on-month, and are expected to increase 50% year-on-year for the whole year. As market inventory adjustments and AI applications accelerate, PCB demand will enter a new growth cycle, and the share of high-end PCB supporting materials will also increase. The company has more space in the market for photosensitive dry film, FCCL, and photosensitive covering film. At present, the company has introduced a number of core PCB customers. Among them, Shanghai Electric, Peng Ding, and Jianding are expected to release large orders in the future.

Impairment losses were carefully calculated, payment collection began to be strengthened, and cash flow management was steady. Q2 accrued an impairment loss of 0.2 billion yuan according to the company's consistent prudent accounts receivable impairment accrual standards, which had a significant impact on the net profit of a single flat sheet of adhesive film. Considering the current pressure on downstream customer profits, the company has strengthened collection since Q2. The net cash flow generated by the company's operating activities in Q2 was 0.94 billion yuan, which was the first time in the past few years that it was corrected in Q2 (previously, it was usually Q1-Q3 net outflow, Q4 net revenue). As of the end of Q2, the company's balance ratio was only 27%. Long-term liabilities were mainly convertible bonds, and the balance and liability structure was very safe.

Currently, the company has sufficient cash on hand. It is expected to be able to go through the cycle, and industry leaders are waiting to recover. We judge that second-tier film losses are not normal. As particle prices stabilize, second-tier companies will be more accurate in judging their own costs, and the probability of losing orders will drop significantly. Based on the above, Foster, as an industry leader, has significant advantages in terms of technical reserves and costs. Compared with second-tier companies, it still has a profit advantage of 0.5-1 yuan/flat. If the company on the far right side of the film cost curve has a profit and loss balance, the company still has a steady profit margin. The company has sufficient cash reserves and a low balance ratio. Under extreme circumstances, it is enough to support the company through the current cycle.

Profit forecast: The company's net profit for 2024-2026 is expected to be 1.644, 2.347, and 2.807 billion yuan, respectively, with year-on-year growth rates of -11.15%, 42.79%, and 19.59%, respectively. Earnings per share are 0.63, 0.9, and 1.08 yuan, respectively. PE corresponding to the closing market value on August 23 is 22.17, 15.53, and 12.98 times, respectively.

Risk warning: 1. Competition in the industry is intensifying. Due to the low capital expenditure and rapid expansion of production, incumbents and new entrants have been expanding production significantly since 2022. If subsequent production capacity is released rapidly, there may be a risk of a price war in the adhesive film industry; 2. The cost of raw materials will rise. The core raw material of adhesive film is EVA/POE resin. The production expansion cycle is 3-4 years. Currently, supply and demand are in a tight balance. The new production capacity is expected to be put into production after 2024. Therefore, as demand in the photovoltaic industry grows rapidly, the supply of upstream resin particles will become more and more tight, and the cost of adhesive film raw materials may rise; 3. Demand in the photovoltaic industry falls short of expectations. We forecast the company's shipments based on demand in the PV industry maintaining a 20%-30% growth rate in the next few years. If demand in the photovoltaic industry falls short of expectations, the company's adhesive film shipments may also fall below our forecast value.