Description of the event

On the evening of August 21, 2024, Dongcai Technology released its 2024 semi-annual report. During the reporting period, the company achieved operating income of 2.122 billion yuan, a year-on-year increase of 16.03%, net profit of 0.16 billion yuan, a year-on-year decrease of 27.45%, and achieved revenue of 1.202 billion yuan in 2024 Q2, an increase of 23.79%, an increase of 30.51% month-on-month, and a net profit of 0.109 billion yuan. .

The main business operations gradually improved. The company's Q2 performance improved dramatically in 2024H1. The subsidiary Dongcai Shinsai's workshop, which was affected by the fire, gradually resumed normal operation. In addition, emerging industries such as domestic UHV power grids, new energy vehicles, artificial intelligence, and car decoration developed with high quality development. The company developed and manufactured UHV electrical polypropylene films and insulating structural components, ultra-thin electronic polypropylene films for new energy vehicles, and insulation materials for driving motors, functional films for automobiles, bismaleimide resins, active esters, etc., ushered in structural development opportunities. 2024Q2 sold 1.38/1.92/0.0259/0.0174/0.0044 million tons of electrical insulation materials/new energy materials/ optical film materials/ electronic materials/ environmentally friendly flame retardant materials, respectively, with a month-on-month change of +60.21%/-1.89%/+43.42%/+51.25%/+26.01%. In terms of price, due to weak downstream demand, the main business price is still bottoming out. The average price of electrical insulation materials/new energy materials/ optical film materials/ electronic materials/ environmentally friendly flame retardant materials in 2024Q2 was 0.96/2.00/0.0116/0.0177/0.0098 million/ 0.0098 yuan/ton, respectively, with a month-on-month change of -7.54%/+17.16%/-0.51%/-10.74%/-0.14%. As the impact of the fire on the company's operations is eliminated and new production capacity is gradually introduced, future performance trends are expected to improve.

With the addition of electronic materials, the new production capacity of optical films is progressing in an orderly manner, and the company's growth space has further opened up the company's continued efforts in the field of high-end optical films. The “25,000-ton optical-grade polyester substrate film project with an annual output of 20,000 tons”, and “ultra-thin polypropylene film line 1 with an annual output of 3000 tons” have now been commissioned and put into trial production. The capacity utilization rate and product stability of new industrial projects will continue to improve and release high quality production capacity. In order to further expand production capacity and leading advantages, enrich the product structure, and actively expand the market application of electronic materials in artificial intelligence, low-orbit satellite communications, etc., the company plans to invest in the construction of an “electronic materials project with an annual output of 20,000 tons for high-speed communication substrates” through Sun Company Dongcai Electronic Materials (Meishan) Co., Ltd. in Meishan City, Sichuan Province. The project is targeted to produce electronic materials for high-speed communication substrates, with a total investment of 0.7 billion yuan. After the project is completed, it is expected to achieve an average annual sales revenue of about 2 billion yuan per year. As digital infrastructure construction continues to improve, electronic materials for high-speed communication substrates will become an important source of profit for the company.

Investment advice

As a leading enterprise in the membrane materials industry, with the rapid development of electronic materials and new energy businesses and successive commissioning, the degree of industrial chain integration has increased dramatically, and the cost and scale advantages are remarkable. Affected by the declining product cycle and fires, the company's net profit for 2024-2026 is expected to be 0.388, 0.502, and 0.649 billion yuan respectively, with year-on-year growth rates of 17.9%, 29.5%, and 29.3% (previous results for 2024, 2025, and 2026 were 0.432, 0.576, and 0.729, respectively) billion yuan, down 23.54% and 24.11% from the previous value, respectively). The current stock price is 14, 11, and 9 times PE, respectively, maintaining a “buy” rating.

Risk warning

(1) Risks caused by price fluctuations of raw materials and major products; (2) production safety risks;

(3) Environmental protection risks;

(4) The project's commissioning schedule fell short of expectations.