Foster is a global leader in photovoltaic film and has been deeply involved in the field of adhesive film for more than 20 years. The company's platform-based development is mainly engaged in products such as photovoltaic packaging materials, electronic materials and functional film materials. Among them, the adhesive film business contributes to the company's main revenue, and 2024H1 accounts for more than 90% of revenue. In 2024, the company plans to simultaneously expand production at bases such as Vietnam, Hangzhou, and Suzhou. By the end of the year, film production capacity is expected to break through 3 billion flat, further consolidating its leading advantage.

Demand for photovoltaic film continues to grow, and iterative product upgrades are expected to support value. (1) Although battery module technology continues to be iterated, these battery technology routes all require adhesive film to provide packaging and protection functions. Currently, no disruptive technology iterations have emerged, and medium- to long-term demand is highly visible. (2) In line with battery module technology to upgrade products, such as N-type permeability to increase demand for POE films, 0BB technology adds demand for skin masks, integrated films, etc., and the new products are expected to support value. (3) PV installed capacity continues to grow, driving demand for photovoltaic film.

Demand for photovoltaic film is expected to reach 7.84 billion square meters in 2026, with a CAGR of about 29% in 2026.

The company is determined to expand film production capacity to consolidate its scale advantage, and has a long-term lead in cost and profit. (1) The scale accounts for half of the industry and stabilizes market share through price control strategies. Foster's shipments rank first in the industry, far ahead of other peers, and have maintained a market share of about 50% over a long period of time. With its scale and cost advantages, the company has strong pricing power in the adhesive film industry. Since 2022, the company has adopted a strategy of price control and stable share to guarantee a high market share. In 2024, the company plans to simultaneously expand production at bases in Vietnam, Hangzhou, Suzhou, etc., and the company's adhesive film production capacity is expected to exceed 3 billion flat by the end of 2024. (2) With factors such as large-scale procurement and process accumulation, unit costs continue to lead the industry. For a long time, Foster continued to lead the industry in gross margin due to factors such as scale advantage, process accumulation, and product structure; in 2023, industry competition intensified, and the gross margin of some companies turned negative, and the company was still able to maintain a high gross profit margin; in 2023, the gross margin of the company's adhesive film business was 14.5%, and the weighted average gross margin of leading second- and third-tier companies was about 9.4pct. We believe that the company's cost advantage is mainly due to large-scale procurement advantages and long-term process accumulation. The company has a large procurement scale and stronger bargaining power. It is estimated that the procurement cost advantage for 2021-2023 is about 1%-6%; although the current price of raw material particles has dropped significantly and the amplitude is narrower than before, against the backdrop of relatively sluggish demand, Foster can provide larger purchase orders, and the procurement advantage is expected to be maintained for a long time. The company is one of the few enterprises in the industry with the ability to independently develop complete equipment. Self-made equipment and process support can effectively improve production efficiency and dilute fixed costs. (3) The scale effect is compounded by capital advantages, and the cost rate for the period is significantly lower than that of peers. Looking at the spin-off, the company's financial expenses ratio is much ahead of its peers. The company has relatively abundant capital and lower financial expenses. At the same time, it can also effectively reduce hidden costs. (4) Accumulated R&D support over the years, and continuous product iteration to meet industry development. In recent years, new technology for photovoltaic cells has changed rapidly, and film companies need to continuously upgrade and iterate film products. With a complete product matrix and excellent R&D capabilities, Foster can better bind and consolidate customer resources by cooperating with component companies to upgrade and iterate products, and is expected to continue leading the N-type era.

Investment advice: The company is a leader in the photovoltaic film industry, leading the market share in the industry. The electronic materials business has created a second growth pole, and platform-based development can be expected in the future. Considering the competitive situation in the industry, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 1.836/2.41/3.155 billion yuan (previous value 2.217/2.864/3.622 billion yuan), respectively, and the current market value corresponding to PE is 20/15/11 times, respectively. Referring to comparable company valuations and historical valuation levels, 20x PE in 2025 was given, corresponding to a target price of 18.48 yuan, maintaining the “recommended” rating.

Risk warning: Risk of PV demand falling short of expectations, risk of raw material price fluctuations, risk of capacity release falling short of expectations, risk of increased competition.