Description of the event

Sanlipo released its 2024 mid-year report. During the reporting period, the company achieved operating income of 1.183 billion yuan, an increase of 21.70% over the previous year; achieved net profit due to mother 0.054 billion yuan, an increase of 131.19% over the previous year; and realized net profit after deducting non-return to mother of 0.065 billion yuan, an increase of 466.75% year on year.

Incident comments

The company's revenue in a single quarter reached a record high. Revenue for the second quarter was 0.641 billion yuan, up 17.22% year on year and 18.09% month on month. It is mainly due to the increase in production capacity utilization in production expansion projects such as Longgang and Putian in the early stages. In terms of profit margin, gross sales margin for the second quarter was 14.42%, up 1.12 pct year on year and down 2.85 pct month on month; net sales margin was 3.85%, up 1.69 pct year on year, and down 1.88 pct month on month. Combined with revenue growth, we determined that in the second quarter, the company continued to increase its market share during the peak stocking season through price promotions, but this put pressure on short-term profit levels.

We believe that the main focus of the next company is on three aspects: 1) The launch of new production capacity in the second phase of Hefei. The company began the installation and commissioning of the Hefei Phase II 1720mm production line during the reporting period, and has begun certification and introduction of the customer's new production line and products. It is expected to be officially put into operation in the second half of this year. The 1720mm width is suitable for 65-inch TV panel cutting, which is expected to improve the profit margin of the company's large-scale business; 2) The industry's leading domestic material supply system. During the reporting period, the company continued to promote key technical research and innovative product development to achieve sales growth of high-end products made of chemical materials across the country, which is expected to become the key to maintaining a cost advantage in the later stages of domestic substitution; 3) Flexible OLED took the lead in achieving breakthroughs in domestic substitution. During the reporting period, the company successfully developed a circular offset for small to medium size 3D solid curved flexible AMOLEDs and achieved mass production in the Q1 quarter of 2024. In addition, in terms of automotive polarizers, the company can also provide automotive iodine polarizer and dye-based polarizer product solutions; polarizer products used in differentiated applications such as semi-reflective eye protection LCDs, AR/VR folding light paths, AR/HUD, and light field screens are also continuing to be iterated or developed.

We believe that since the panel industry chain entered a downward cycle in 2021, when downstream panel manufacturing profits were under pressure, upstream materials were also under obvious price reduction pressure. However, with the restoration of the downstream price center after production in 2024 and the reduction of depreciation costs, the profitability of polarizers is expected to be repaired in the long term. The company's 2024-2026 EPS is expected to be 0.80, 1.26, and 2.06, and the corresponding PE is 25.34, 16.11, and 9.87, respectively.

Risk warning

1. Consumer electronics recovery falls short of expectations;

2. New product release progress falls short of expectations.