Key points of investment

Incident: In the first half of 2024, the company achieved operating income of 0.342 billion yuan, a year-on-year increase of 4.39%, net profit to mother of 91.8132 million yuan, a year-on-year decrease of 5.81%, after deducting non-return net profit of 63.626 million yuan, a year-on-year decrease of 26.80%.

Evaporation sources are “six” cut to “eight,” and short-term profits in the materials business are currently under pressure, and the domestic AMOLED industry is at a time point where “the peak of production of the sixth generation has passed, and the construction cycle has not yet begun”. For the company, subsequent orders for evaporation source equipment come more from maintenance, improvement and upgrade requirements, and revenue has entered a relatively weak stage. Therefore, for Olaide, in the quarter where there is no confirmation of evaporation source equipment, the dependence of performance on the material side is relatively high. The company has been investing heavily in materials research and development over the past few years. As can be seen from this interim report, the company is currently developing 25 projects, of which more than half are materials-related, and the current cumulative investment amount of most projects has exceeded 50% of the estimated total investment scale. This is the reason why the company's R&D expenses in the second quarter accounted for more than 35% of revenue, and the completion of many new material customer certification work was concentrated in the second half of last year, and it is still necessary to obtain more orders in the first half of this year in the form of concessions from customers.

Overall, high R&D investment and unfully unleashed profitability caused the company's materials business to increase revenue but not profit in the first half of this year. The time point for actual collapse of the game has not yet arrived, but I believe that with the rapid progress of the localization process of customer materials, profit data will only be implemented sooner or later.

Continuing to be deeply involved in light-emitting functional materials, PSPI and packaging materials have continued to break through in terms of light-emitting functional materials. In the past two years, Olaide has carried out customer verification and introduction of Prime light-emitting auxiliary materials. The dominant products GreenPrime, RedPrime, and BluePrime have all achieved stable supply. At the same time, main and admixture materials have also been successfully developed and sent to customers for verification; high-performance red and blue light main materials have been developed smoothly and have been recommended for testing to customers. In the second half of the year, with the release of domestic Android flagship models, the panel factory is expected to launch a new light-emitting material system. At that time, the company's customer verification of the R&D iterative capabilities shown in the past few years is expected to help the company obtain orders for new materials, thereby driving further material revenue growth. On the other hand, in terms of core materials that limit and influence flexible AMOLED displays, the company is developing technology around high-barrier products such as packaging materials, PSPI, and PR materials. Packaging materials and PSPI materials have already been delivered on production lines, especially PSPI materials, in the first half of this year Revenue is 11 million yuan. The growth trend has begun, and the market space for domestic substitution has already opened up.

8.6-generation AMOLED evaporation sources are poised to launch. Emerging application market evaporation equipment forward-looking cards. Up to now, domestic and foreign panel manufacturers such as Samsung, BOE, and Vicino have announced plans for 8.6-generation AMOLED production lines. Other mainstream players are expected to follow suit after planning. The 8.6-generation AMOLED production line is more aimed at medium and large size requirements, which is expected to accelerate the application of laminated device structures. Overall, the 8.6-generation linear evaporation source market space is huge, and the expansion phase is gradually approaching. The company has The 8.6-generation linear evaporation source is forward-looking, prototype production has been completed, and performance, parameter testing and market development work is being carried out. With the customer resources and technical reserves accumulated by the 6th generation linear evaporation source, the company is expected to be the first to benefit.

At the same time, the company continues to enrich its product structure, forward-looking technological innovation, and carries out R&D investment and technology development of evaporation equipment around silicon-based OLEDs and perovskite related fields. The company has completed design plans for various functional machines such as R&D machines and pilot test benches. The 650*450 perovskite functional layer evaporation equipment has achieved phased results. In the future, the development of GW-class mass production equipment will be further consolidated. In the future, with the explosion of these emerging industries, the evaporation equipment business is expected to rise to the next level.

Profit forecast and investment suggestions: The company is expected to achieve net profit of 1.31, 2.12, and 309 million yuan in 2024-2026. The current market value corresponds to PE of 24.82, 15.28, and 10.49 times, respectively. Short-term material-side profit pressure is normal in the localized material replacement process. It is expected that the company will gradually recover material-side profit margins and introduce new orders for evaporation sources from the second half of this year to the first half of next year. It is recommended to continue to monitor the company's order progress and give the company an “increase in wealth” rating.

Risk warning: 1. The R&D progress falls short of expectations; 2. Changes in the supply pattern of evaporation equipment have an impact on the supply of evaporation sources; 3. The progress of material introduction is slowing down.