Incident Overview

The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.647 billion yuan, a year-on-year increase of 14.82%, achieved net profit of 17.0574 million yuan, a year-on-year decrease of 71.92%, and realized net profit deducted from non-mother of 9.3875 million yuan, a year-on-year decrease of 78.45%. The main reason is that the company's diaphragm and other projects are still in the process of rising production capacity and construction, and production capacity has yet to be released, and there are certain losses. 2024Q2's single-quarter results improved month-on-month, achieving net profit of 8.8246 million yuan, up 7.19% month-on-month, and gross profit margin of 25.68%, up 2.29 percentage points month-on-month.

The traditional business is stable, moderate and positive, and the basic market of the company has been strengthened. (1) Reflective film: 2024H1. The company's reflective film sales revenue increased steadily, and the gross margin was 36.56%, which remained at a high level (37.63% in 2023). The company firmly occupies a leading position in reflective films, and its market share is the highest in the world. It continues to promote applications such as Mini LED reflective film, small to medium size reflective film, blister reflective film, quantum dot reflective film, etc., and the shipping area is growing steadily. We believe that there is still room for growth in the reflective film market, benefiting from factors such as the deepening trend of larger TVs around the world and the expected increase in the Mini LED penetration rate. (2) Optical substrates: By continuously improving the key indicators of optical substrates, the company increased the share of shipments of products such as optical pre-coating films for displays. By improving product quality, the proportion of high-end products such as OCA release film substrates in product applications has steadily increased, and gross margin has improved quarterly, increasing 8.50 percentage points over the previous year.

Focus on the layout of separators and CPI films for solid or semi-solid state batteries to open up future growth space.

(1) Diaphragm: The company focuses on promoting the development of lithium battery separator projects. It has developed diaphragm products with different performance specifications, and dry membrane products have been mass-produced and shipped. Separators for solid-state or semi-solid-state batteries will become a key direction for the company's future production capacity layout. The diaphragm products developed exclusively by the company with ultra-high porosity (≥ 85%), ultra-large aperture (85~100nm), and high compressibility (≥ 50%) can be widely used on different technical routes. They have breakthrough improvements over traditional diaphragms in terms of improving the cycle life of solid and semi-solid state batteries, battery capacity, usage temperature, safety, and cycle performance. The company predicts that when the solid-state or semi-solid-state battery industry produces 100 GW, the amount of new functional diaphragms is expected to reach 1.5-2 billion square meters. With the rapid development of the solid-state battery industry, diaphragms will also usher in rapid growth. We believe that with the performance advantages of differentiated products, the company is expected to open up the blue ocean market for diaphragms and become a major growth point for the company in the future. (2) CPI film: CPI film can be used as an important raw material for covers, substrates, touch, etc. in flexible display structures such as folding screens. In the future, the shipment volume and penetration rate of folding phones are expected to grow rapidly, yet the CPI film market has long been monopolized by Western, Japanese, and South Korean companies, and there is an urgent need for breakthroughs in localization technology. The company began developing CPI films in 2018, and completed and developed key processes from monomer polymerization to film processing on its own. The company will accelerate the verification of end customers of CPI films and actively implement the investment and construction of the “1 million square meter colorless transparent polyimide film project with an annual output”, which is expected to break through the long-term monopoly situation of foreign companies over transparent CPI films.

Investment advice

The company's basic market is stable, and new business growth can be expected. We predict that in 2024-2026, the company's revenue will be 1.535/2.127/2.625 billion yuan, with year-on-year growth rates of 22.44%, 38.61%, and 23.42% respectively; net profit to mother will be 0.115/0.201/0.295 billion yuan respectively, with year-on-year growth rates of 20.94%, 74.43%, 46.60%, EPS 0.40/0.69/1.02 yuan/share, 2024/9 The corresponding PE prices on March 3rd were 31.44x, 18.04x, and 12.32x, respectively. Maintain a “buy” rating.

Risk warning

Development and customer development of new products such as separators and CPI films for solid-state or semi-solid state batteries fell short of expectations. Demand for main products such as reflective films declined, and project construction progress fell short of expectations.