1H24 results fall short of our expectations
The company announced 1H24 results: revenue of 2.217 billion yuan, a year-on-year decrease of 18.07%; net profit to mother of 41.64 million yuan, a year-on-year decrease of 43.78%; loss of 29.97 million yuan after deducting non-net profit (profit of 18 million yuan for the same period last year). 1H24's performance fell short of our expectations, mainly due to low revenue and gross margin expectations.
Corresponding to 2Q24 revenue of 0.954 billion yuan, a year-on-year decrease of 35%/a month-on-month decrease of 24.49%; net profit to mother was 27.85 million yuan, a year-on-year decrease of 37.54% /month-on-month increase of 102.1%; deducted non-net profit of 0.77 million yuan (non-recurring profit and loss was mainly government subsidies).
Development trends
The revenue of the new display sector is under pressure, benefiting from the increase in the share of notebook computers from major customers and an increase in gross margin. The revenue of the new 1H24 display segment was 1.546 billion yuan, down 32.95% year on year. We judge that the main reason was oversupply in the industry and increased market competition; the net profit loss was 3.22 million yuan (loss of 44.69 million yuan in the same period last year), mainly due to the increase in gross margin due to the increase in laptop share of major customers. 1H24's gross margin increased 6.57ppt to 14.45% year over year. In addition, automotive display modules have made good progress, and the company announced that UTG products are exclusively for “Red Flag? The “Guoya” sedan is the world's first 14.2-inch on-board sliding curved display.
The revenue and profitability of the applied materials sector are under pressure due to sluggish downstream demand and inventory removal in the photovoltaic industry.
The revenue of the 1H24 applied materials sector was 0.671 billion yuan, down 23.15% year on year. We judge that it was mainly due to weak industry demand and the impact of inventory removal in the photovoltaic industry; net profit was 91.97 million yuan, down 42.24% year on year, mainly due to gross margin falling 2.16ppt to 18.84% year on year. The company announced batch supply of nano zirconia in the new energy battery and hydrogen energy industry; the introduction of spherical materials to leading NEV companies and batch orders; and the introduction of high-purity quartz sand into the supply chain systems of leading photovoltaic and semiconductor companies.
UTG Phase II and semiconductor silica production lines are progressing steadily, and there is room for long-term growth. In terms of new displays, the company announced that UTG Phase II already has production capacity for 4 production lines, and construction of the remaining production lines has begun; in terms of applied materials, the company announced that the semiconductor silicon dioxide production line project with an annual output of 5,000 tons will be tested with materials in October. We are optimistic about the company's long-term growth space under the expansion of production capacity.
Profit forecasting and valuation
Considering weak downstream demand and inventory removal in the PV industry, the 2024 net profit forecast was lowered by 30.7% to 0.141 billion yuan, keeping the 2025 net profit forecast unchanged. The current stock price corresponds to 42.6 times P/E for 2025.
Maintaining an outperforming industry rating, considering the upward shift in the industry valuation center, the target price was raised by 19.1% to 16.21 yuan (based on the 2025 SOTP valuation), which corresponds to the target price-earnings ratio of 47.3 times in 2025. There is 11.0% upside compared to the current stock price.
risks
The production progress of high-purity synthetic silica fell short of expectations, and UTG customer imports fell short of expectations.