Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 0.356 billion yuan, a year-on-year increase of 79.9%, achieved net profit of 0.13 billion yuan, a year-on-year increase of 131.7%, achieved net profit after deduction of 0.116 billion yuan, an increase of 187.9% over the previous year, and achieved a basic EPS of 0.32 yuan. Q3 achieved revenue of 0.111 billion yuan, +95.5% year over year, and realized net profit of 0.037 billion yuan to mother, +204% year over year.

Demand is picking up, new products are being released, and the company's performance continues to increase. The company's third-quarter results continued the high trend in the first half of the year. The main reason was that as demand for terminal consumer electronics picked up and the OLED penetration rate continued to increase, the company's downstream customer demand continued to grow, and the company's OLED terminal material sales revenue increased sharply year-on-year. In terms of profit margins, the company's gross sales margin in the first three quarters was 66.4%, +2.8pp year on year, and net sales profit margin 36.4% year on year, and +8.1pp year over year. The main reason for the increase in product profitability was that as GH material production capacity climbed, process optimization and scale effects showed; intermediate business companies focused on high-end products to increase overall profit. In terms of new products, the focus is on promoting client-side verification testing of new products Red Host materials, Green Prime materials, and blue light series materials; on the customer side, while maintaining stable mass production and supply of leading OLED panel manufacturers, we are actively developing new customers and verifying and testing various products on the customer side to gradually achieve full coverage of domestic OLED panel manufacturers, actively expand other customers such as silicon-based OLEDs, etc., and multiple materials are undergoing verification tests on clients such as Vision and Nanjing Guozhao. The progress is good; on the R&D side, the company invested in R&D expenses in the first three quarters 43.86 million yuan, up 14.6% year over year.

Mainland OLED shipments rank first in the world, and the penetration of medium-sized OLEDs is accelerating, and material manufacturers have fully benefited. According to CINNO Research, in the first half of 2024, mainland China surpassed South Korea's OLED smartphone shipments, ranking first in the world. In the first quarter of 2024, Chinese panel manufacturers surpassed South Korea's OLED smartphone shipments for the first time, reaching 53.4% of the market share, ahead of South Korea's 46.6%. Domestic mobile phone brands continue to increase their procurement volume of domestic flexible AMLEDs, the position and competitiveness of mainland Chinese panel manufacturers in the global OLED smartphone market is constantly improving, and domestic replacement of OLED materials is unstoppable. Furthermore, as leading terminal manufacturers such as Apple and Huawei use OLED displays on new tablets, the application of OLED in medium sizes will become an industry trend. Since 2024, head panel manufacturers are also actively promoting the construction of high-generation OLED production lines, and OLED material manufacturers will also fully benefit from the increase in the penetration rate of medium-sized OLEDs.

Profit forecasting and investment advice. The company's 2024-2026 revenue is estimated to be 0.5 billion yuan (+65.21%), 0.61 billion yuan (+23.52%), and 760 million yuan (+23.47%), and net profit to mother is 0.19 billion yuan (+153.03%), 0.236 billion yuan (+21.13%), 0.29 billion yuan (+22.23%), EPS 0.48 yuan, 0.59 yuan, and 0.72 yuan, respectively. The corresponding dynamic PE is 42 times, 35 times, and 29 times, respectively.

The company's terminal materials have high patent barriers, and are deeply tied to BOE, the panel leader, and active attention is recommended.

Risk warning: Project commissioning falls short of expected risk, downstream demand falls short of expected risk, customer expansion falls short of expected risk, product development progress falls short of expected risk.