Description of the event

The company released its 2024 three-quarter report. In the first three quarters, it achieved revenue of 2.01 billion yuan (YoY +33.1%), realized attributable net profit of 0.054 billion yuan (-36.2% YoY), and achieved attributable deducted non-net profit of 0.032 billion yuan (-46.5% YoY). 2024Q3 achieved revenue of 0.67 billion yuan (+26.7% YoY, -0.4% month-on-month), realized attributable net profit of 0.021 billion yuan (+6.5% YoY, +49.9% month-on-month), and realized 0.01 billion yuan of attributable deducted non-net profit (+1.9% YoY, -42.1% month-on-month). The company and its wholly-owned subsidiary recently received a government subsidy of RMB 0.11 billion. The estimated impact on the company's profit before tax in 2024 is 7.335 million yuan.

Incident comments

The company opens up development boundaries as a leader in functional coating composites and expands horizontally and vertically. The company's main products are divided into functional film materials, electronic grade adhesive materials, polymer film materials, thermal management composites and film packaging materials, which are used in key fields such as consumer electronics, new displays, new energy vehicles, household appliances, and ceramic capacitors. The company continues to expand in new categories, focusing on OCA adhesives and coatings, precision release films, upstream PET base films, homemade glues, etc., and continues to enhance the company's core competitiveness.

Revenue increased sharply in the first three quarters, climbing during the new production capacity transition period, and performance is still under pressure. In the first three quarters of 2024, with the commissioning and transformation of various new projects and product sales volume, the company's revenue increased markedly. However, due to the fact that the new project installation was in a climbing period, the general product industry was seriously affected. The gross margin was 23.3%, down 4.8 pct from the previous year. The company's R&D expenses increased 30.6% year on year in the first three quarters, mainly due to the continuous increase in R&D investment in the fields of optics and new energy in the current period; financial expenses increased 162.0% year over year, mainly due to the successive completion and transfer of various projects in the previous year and current period to fixed assets. The project changed from construction period to operation period, and some loan expenses changed from capitalization to cost. Consumer electronics manufacturers launched new products in the third quarter, producing and distributing them ahead of schedule, which also brought about a rapid increase in the company's new production capacity.

Projects under construction continue to advance, and there is plenty of room for the future. The company raised capital through IPOs and fixed increases to invest in various projects. Currently, the OCA fund-raising project, PET base film line 1/2, and precision release film coating projects have been successfully put into operation. Projects such as functional tape and polarizer protective film are in the process of being promoted. The production lines of the PTE3 line, PVD magnetron sputtering film project, and some functional tape projects have reached a predetermined state of use. In the future, production volume will gradually increase the company's profits.

OCA optical adhesives have a wide range of local alternatives. According to estimates of demand in various fields such as downstream OCA smartphones, tablets, PCs, in-vehicle displays, and wearable devices, the global OCA adhesive market is close to 10 billion yuan. Along with a sharp increase in the value of stand-alone OCA optical adhesive for folding screen phones and a rapid increase in expected shipments of folding screen phones, it is expected to bring a new round of growth opportunities to the OCA optical adhesive market. Huawei released the world's first tri-folding phone, bringing a new mobile user experience and being widely recognized by the market, which in turn is expected to boost the development space of the company's OCA optical adhesive market. The company continues to release electronic grade adhesive materials such as OCA optical adhesive, OCA explosion-proof film, anti-impact protective film, dustproof film, etc., and electronic materials for new energy vehicles, and the product structure is continuously upgraded and optimized.

The company is at the leading level in the field of new adhesive materials and functional films. The amount of OCA glue released and the localization of high-end release films opens up space for future development. The estimated net profit for 2024-2026 is 0.08/0.19/0.28 billion yuan. Maintain a “buy” rating.

Risk warning

1. The recovery in downstream demand fell short of expectations;

2. The progress of the new project is lower than expected.