Incident: In the first three quarters of 2024, the company achieved revenue of 0.464 billion yuan, an increase of 11.9% year on year; achieved net profit of 0.101 billion yuan, an increase of 3.6% year on year; achieved net profit of 66.14 million yuan after deduction, a decrease of 15.5% year on year. With 2024Q3, the company achieved revenue of 0.122 billion yuan in a single quarter, up 40.3% year on year and 45.1% month on month; realized net profit of 9.44 million yuan, up 3580% year on year, turning loss into profit from month to month.

OLED material revenue continues to grow, and the increase in R&D investment temporarily affects current performance. In the OLED materials business, 24Q1 and 24Q2 companies' OLED materials business revenue was 0.129 billion yuan and 81 million yuan respectively. Considering the gradual increase in the operating rate of domestic OLED panel manufacturers, we expect the company's 24Q3 OLED materials revenue to increase slightly to about 0.09 billion yuan over 24Q2. Therefore, we expect 24Q1-Q3's OLED materials to achieve total revenue of about 0.3 billion yuan, which is an estimated year-on-year increase of about 35.1%. In terms of equipment business, we expect 24Q3's equipment business revenue to be about 0.03 billion yuan. We believe that 24Q3 equipment revenue mainly comes from domestic OLED production line evaporation source equipment modification orders obtained by the company in the early stages. Although the company's 24Q1-Q3 evaporation source equipment revenue declined year-on-year due to the end of the construction of domestic 6th generation OLED production lines, considering future demand for laminated transformation of some domestic 6th generation OLED production lines and acquisition of evaporation source orders for 8.6 generation OLED production lines, there is still plenty of room for improvement in the company's evaporation source equipment revenue in the future. In terms of R&D investment, as the company vigorously promoted research and development of key equipment such as high-generation evaporation source equipment, 24Q1-Q3's R&D investment increased 19.6% year-on-year to 0.111 billion yuan, and the corresponding revenue share increased by about 1.54 pct. Although the increase in R&D investment temporarily affected the company's current performance, the company's high-generation evaporation source R&D project reached pre-order use status in August 2024, and corresponding R&D investment will be reduced in stages.

New OLED materials were successfully introduced, and orders for 8.6th generation OLED evaporation sources can be expected. In terms of materials, the company's dominant products, RGB Prime materials, have all been introduced into production lines to achieve stable supply; red and green main materials and mixed materials have been sent to customers for verification. Furthermore, the company's PSPI materials and packaging materials have all been supplied to the production line, and production is climbing. In terms of equipment, the company has now completed the preparation of an 8.6-generation evaporation source prototype. As a leader in the domestic evaporation source industry, with the opening of tenders for 8.6 generation evaporation sources by domestic OLED manufacturers, the company will be more likely to obtain corresponding orders. Furthermore, in October 2024, the company's subsidiary Shanghai Shengyi once again won the bid for the Wuhan Tianma 6th generation AMOLED production line evaporation source transformation project, which indicates that the company's revenue in the 6th generation OLED evaporation source field is still sustainable.

Profit forecast, valuation and ratings: The company's OLED materials revenue continued to grow in the first three quarters of 2024, but due to the phased increase in R&D investment and delays in receiving new orders for evaporation sources, the company's performance fell short of previous expectations. We lowered the company's profit forecast for 2024-2026. We expect the company's net profit to be 1.34 (down 34.2%) /2.32 (down 29.4%) /4.15 (4.2%) billion yuan in 2024-2026, respectively. We continue to be optimistic about the company's subsequent development as a leading manufacturer of OLED materials and evaporation source equipment in China, and maintain a “buy” rating.

Risk warning: New product introduction risk, OLED material release falls short of expectations, product development risk.