Incident: The company's 2024H1 revenue was 10.76 billion yuan, up 1.4%, net profit to mother was 0.93 billion yuan, 4.9%, gross profit margin 16.7%, 2.1 pct, 8.6%, 0.3 pct; 2024Q2 revenue 5.44 billion, -4.6%/+2.3% year over month, net profit to mother 0.41 billion yuan, gross profit margin 18.1%, year-on-month +1.4pct/ +2.8pct, net profit margin 7.5%, -1.6pct/-2.3pct YoY.

2024Q2's market share continued to increase as both volume and profit increased. The company's 2024H1 shipments were about 1.39 billion square meters, an increase of 43.6%; of these, 2024Q2 shipments were about 0.71 billion square meters, an increase of 5%, and the company's market share continued to increase. The price of 2024Q3 particles fell to a historic low, and the price of adhesive film followed the trend, and profits may have declined, but the company continues to maintain a market share of more than 50%. The company expects shipments to reach 2.6-2.8 billion in 2024, an increase of 20-30%.

New materials performed well, and there was a high increase in photosensitive dry film shipments. The 2024H1 backplane business shipped 67.78 million square meters, a decrease of 18%; photosensitive dry film 2024H1 shipped 73.665 million square meters, an increase of 36%. 2024H1 net profit has already surpassed the full year of 2023. Shipments in 2024 are expected to be 0.15 billion flat+, an increase of 50%. At the same time, the product structure continues to upgrade to the middle and high-end, covering well-known customers in industries such as Pengding Holdings, Shanghai Electric Power Co., Ltd., and Shennan Circuit. We expect gross margin to increase in 2025-2026. The new materials business has blossomed more and gradually contributed to new performance growth points.

Operating cash flow has improved markedly, and credit impairment has been carefully calculated. Expenses during the 2024Q2 period were 0.29 billion yuan, +13%/+24%, cost rate 5.3%, +0.8/+0.9pct; 2024Q2 net operating cash inflow was 0.94 billion yuan, 204%/2898% compared to the same period, mainly due to increased revenue due to fluctuations in sales and repayment times, and a decrease in cash payments due to 2024H1 raw material price reduction; 2024H1 totaled 0.235 billion yuan in credit and asset depreciation, of which 2024Q2 Credit impairment of approximately $0.2 billion was carefully calculated to control repayment risk.

Profit forecast and investment rating: Considering the decline in plastic film prices, we lowered the company's profit forecast. We expect net profit of 1.84/2.36/3.01 billion yuan to the mother in 2024-2026 (previous value was 2.61/3.28/4.1 billion yuan), -0.44%/+28%/+27% year-on-year, giving 20xPE in 2025, with a target price of 18 yuan, maintaining the “buy” rating.

Risk warning: Policies fall short of expectations, increased competition, etc.