Description of the event

Foster released its 2024 semi-annual report. 2024H1 achieved revenue of 10.764 billion yuan, a year-on-year increase of 1.39%; among them, 2024Q2 achieved revenue of 5.442 billion yuan, a year-on-year increase of 4.95%; among them, achieved revenue of 5.442 billion yuan, a year-on-year decrease of 4.57%, and a month-on-month increase of 2.27%; and net profit to mother of 0.407 billion yuan, a year-on-year decrease of 21.79%. Furthermore, the company experienced credit impairment of 0.2 billion yuan and asset impairment of 0.06 billion in Q2. After adding back, the company's operating performance exceeded 0.6 billion, which was significantly better than expected.

Incident comments

In the adhesive film business, the company's 24H1 sales were 1.39 billion flat, an increase of 44%. The company's 24H1 film share is expected to continue to increase.

The company's Q2 net profit per watt is expected to increase month-on-month, and the performance is better than market expectations. The first reason is that module production schedules were strong in March-April, and film prices rose; second, although adhesive film declined in May-June due to weakening demand, the company showed strong cost control capabilities, and the impact on profitability is expected to be limited.

In other businesses, sales of 24H1 photosensitive dry film were 0.074 billion flat, up 36% from the same period. 24H1 backboard sales fell 18.3% to 0.068 billion flat. Demand for backpanels is relatively flat due to the increase in the share of double glass. At the same time, main chain pressure is transmitted to auxiliary materials, resulting in a relatively average backboard volume and price trend. We expect the company's 24H1 backboard business to contribute little profit.

The company's Q2 credit impairment was 0.2 billion, mainly because the company formulated a strict bad debt preparation and accrual policy for accounts receivable based on the principle of prudence; the asset depreciation was 0.06 billion, mainly due to particle price declines. In terms of costs, the cost rate for the 24H1 period was 4.87%, of which Q2 was 5.33%, which is within a reasonable range. The company's repayments were good, with operating cash inflow of 0.94 billion in Q2 and 5.126 billion in accounts receivable and notes at the end of Q2, an increase of only 8%. At the same time, the company had 4.1 billion in cash at the end of Q2 and a balance ratio of only 26.7%. The balance sheet was significantly stronger than that of its peers.

After 2 years of competitive pressure in the market, the pace of production expansion and financing for second- and third-tier film companies and potential new entrants has clearly slowed down. As a leading company, Foster has shown strong ability to control the pattern. Looking ahead, Foster's September film production schedule and price are expected to be stable month-on-month. We believe that as component production increases and demand for adhesive film picks up, the company is expected to repair volume and price simultaneously, and the inflection point of the cycle is worth looking forward to. At the same time, battery technology will continue to change in the next two years (such as 0BB, etc.), driving film products to be rapidly iterated. Foster's advantages in formulations, equipment, etc. are expected to expand further, consolidating market share and increasing profitability.

We expect the company to achieve a profit of 2 to 2.7 billion yuan in 2024-2025, corresponding PE of 18 or 13 times, and maintain a “buy” rating.

Risk warning

1. The market competition pattern deteriorates;

2. PV installation falls short of expectations.