Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved revenue of 1.042 billion yuan, a year-on-year increase of 34.78%; realized net profit due to mother -0.03 billion yuan, a year-on-year decrease of 168.77%; and realized deduction of non-net profit of -0.044 billion yuan, a year-on-year decrease of 88.75%. In 2024, Q2 achieved revenue of 0.517 billion yuan, a year-on-year increase of 20.45% and a decrease of 1.67%; realized net profit to mother of -0.025 billion yuan, a year-on-year decrease of 101.91%, a sharp decrease of month-on-month; and realized deduction of non-net profit of -0.035 billion yuan, a year-on-year decrease of 79.36%, a sharp decrease from the previous month.

Benefiting from glass-based application penetration & increased market share, 24Q2 revenue growth: In the first half of 2024, the company continued to promote glass-based penetration in the fields of miniLED backlighting, direct display, and advanced semiconductor packaging, actively increasing the existing business market share, and achieving a steady year-on-year increase in revenue. Among them, the glass refining business (thinning, coating, cutting) achieved revenue of 0.282 billion yuan, an increase of 5.97% year on year; the holding subsidiary Beijing Baoang achieved main business revenue of 0.555 billion yuan, an increase of 99.43% year on year. In terms of profitability, due to the impact of the consumer electronics and LCD panel industry, product sales prices have declined, and the company's overall gross margin has declined. In '24, H1's gross margin was 16.46%, -2.92 pcts year on year; net margin was -1.19%, -1.34 pcts year on year. The company's gross margin in Q2 '24 was 15.27%, -3.60 pcts year on year, -2.35 pcts month on month; net margin was -3.42%, -1.87 pcts year on year, -4.43 pcts month on month. In terms of expenses, the sales, management, R&D, and financial expenses of H1 in 24 were 2.54%/7.64%/5.21%/1.78%, respectively, -1.34/ -0.95/+0.32/-0.13pcts. In the first half of 2024, the company's R&D expenses increased by 43.11% year-on-year, mainly due to the company's active development of new products, R&D investment continued to increase.

The main display business supports the company's growth and is expected to increase the production capacity of glass substrates: In the first half of 2024, the company mainly achieved revenue in the display business segment, and the semiconductor business is in the equipment installation and commissioning stage before mass production due to new production capacity. In terms of display business, Jiangxi Dehong Display, a wholly-owned subsidiary of the company, already has an annual production capacity of 1 million square meters of glass-based mini LED substrates. Currently, multiple projects are continuing to advance with many well-known domestic and foreign terminal brand customers, and is in the early stages of small-batch supply and introduction of new product samples; Beijing Baoang reached a strategic cooperation with SK MWS of Korea. The proposed areas of cooperation are mainly key film cutting projects used in the OLED display production process and imported into well-known panel factories. In terms of semiconductor business, the production capacity construction of Hubei Tongge Micro's 1 million square meter glass-based semiconductor board grade sealing board project is progressing steadily. The first phase is expected to produce 0.1 million square meters per year for trial production within this year. As demand for high-performance computing power chips increases, glass substrates, with their excellent flatness, insulation, thermal performance, and optical properties, provide an attractive alternative to traditional substrates for emerging applications requiring intensive, high-performance interconnections. TGV technology capabilities have received widespread attention in the field of advanced semiconductor packaging. The company is expected to use the leading edge of TGV technology to lay a solid foundation for subsequent commercialization of glass-based TGV carrier boards in the field of advanced semiconductor packaging.

Optimistic about the expansion of glass-based display applications & the commercialization of Chiplet chip packages: With the development of new AMOLED display technology and the reduction in costs, AMOLED is beginning to accelerate from traditional smartphones to mid-size products such as folding screen phones, tablets, and laptops. The company announced in March 2024 that it plans to invest in the construction of an AMOLED display glass-based photo-etching and finishing project. The project is expected to be officially put into production in 2026, and the production year is expected to achieve a monthly production capacity of 0.024 million sheets. The construction of this project will facilitate the first large-scale mass production application of the company's ECI technology in the field of glass-based photo-etching finishing of medium and large OLED displays. Furthermore, with international semiconductor giants such as Intel, Nvidia, Samsung, Apple, and AMD entering the market in the past two years, research using glass as a new semiconductor material is entering a stage of rapid development. In August 2024, Hubei Tonggewei and Arctic Xiongxin reached a strategic cooperation agreement. Based on Tonggewei's international leadership in core technologies such as glass-based massive through-hole (TGV), glass-based precision circuit copper plating, and glass-based high-precision multi-layer wiring, and Arctic Xiongxin's domestic leading position in Chiplet technology, the two sides will jointly overcome core technical problems such as glass-based high-performance computing chip packaging and large-size chip interconnection to accelerate the commercialization process of glass-based Chiplet chip packaging and other fields.

Maintaining a “buy” rating: In the first half of 2024, the company realized the application of glass-based precision integrated circuit manufacturing, glass-based metallization in the fields of Mini LED backlighting and Mini/Micro LED direct display products, and continued to promote industrial layout and commercial mass production. At the same time, the company followed the industry's development direction, actively laid out glass-based applications for AMOLED displays and accelerated the commercialization process of glass-based devices in Chiplet chip packaging. As mass production of existing projects continues to advance and TGV technology continues to penetrate, the company is expected to benefit from the release of demand for glass-based materials in the fields of displays, TVs, automotive and advanced semiconductor packaging. Considering that the boom in the consumer electronics and LCD panel industry falls short of expectations, and that the company invests in the construction of AMOLED display glass-based light etching and finishing projects, expenses will increase during the period, so the company's profit forecast was lowered. The company's net profit for 2024-2026 is estimated to be -0.04 billion yuan, 0.102 billion yuan, and 0.208 billion yuan respectively, EPS is -0.18 yuan, 0.46 yuan, and 0.93 yuan, respectively, and PE in 25-26 is 39X and 19X respectively.

Risk warning: Mini LED glass-based production capacity release falls short of expectations, AMOLED project construction falls short of expectations, downstream demand falls short of expectations, market competition risks.