“Little Giant”, a functional material for consumer electronics, whose main customers are Apple, Samsung, etc. The company has been deeply involved in consumer electronics functional materials for many years, and its products are widely used in well-known consumer electronics brand products such as Apple and Samsung. 1H24 achieved revenue of 0.309 billion yuan (YoY +45.04%) and net profit of 0.104 billion yuan (YoY +30.69%) to mother. Corresponding to 2Q24 in a single quarter, achieved revenue of 0.176 billion yuan (YoY +33.69%, QoQ +31.89%) and net profit of 0.062 billion yuan (YoY +26.65%, QoQ +51.02%). Profitability improved year over month, with 2Q24's comprehensive gross margin of 57.89% (YoY +0.41pct, QoQ +4.48pct).

The steady growth of electronic composite functional materials is the main driving force for the company's growth. Electronic composite functional materials are a class of electronic grade material products with composite functions. They are mainly used in electronic products to meet the specific requirements of customers for the bonding strength, thermal conductivity, electrical conductivity, electromagnetic shielding, and weather resistance of materials within a specific space. This type of material puts forward composite requirements for product functionality, and the technical difficulty is high. The company's products directly compete with leading international material companies in this field. The international competitiveness of products is constantly increasing, and some self-developed products have been replaced by imports. 1H24 introduced new products through product technology innovation. The sector achieved revenue of 0.213 billion yuan, an increase of 23.06% over the previous year, and continued to grow steadily for many years.

Photoelectric display module materials made rapid breakthroughs, and subsequent production capacity construction accelerated. 1H24 achieved a major breakthrough in optoelectronic products, with revenue of 0.074 billion yuan, an increase of 527.61% over the previous year. The company will continue to increase R&D innovation and project implementation of high-performance optical materials, and actively promote the proofing and verification of other optical products. Currently, the company is speeding up the construction of additional production capacity for optoelectronic materials. With subsequent production capacity implementation, the growth space for this type of business will continue to be freed up.

The fund-raising project guarantees sufficient production capacity, and the adhesive will soon be put into production. The “Functional Material Expansion and Upgrade Project” funded by the company's IPO has been put into operation one after another since 2021. Three new production lines have been put into operation this year. As of 1H24, the project investment progress has reached 97.63%, and it is expected that all of them will be ready for use in June 2025. As of the first half of the year, the company has invested in the high-efficiency sealant project. As of the first half of the year, the investment progress has reached 87.39%. It has completed the installation of infrastructure and major equipment, and is about to enter the trial production stage. It is expected to reach the scheduled state of use in October 2025. Adhesive materials are the company's seed business. The amount of adhesive materials released will help the company form a more balanced product structure and support the company's long-term stable development.

Investment advice: maintain an “better than the market” rating

As overall demand for consumer electronics in 22-23 fell short of previous expectations, we lowered the company's profit forecast. The company's net profit for 24-26 is expected to increase 25.9/23.7/ 21.0% year-on-year to 0.243/0.301/0.365 billion yuan (previous values were 0.286, 0.346, and 0.418 billion yuan), corresponding PE was 15/12/10 times, respectively, maintaining the “superior to the market” rating.

Risk warning: Product expansion falls short of expectations, customer expansion falls short of expectations, downstream terminal demand falls short of expectations.