1-3Q24 performance falls short of our expectations

The company announced 1-3Q24 results. Revenue achieved 1 billion yuan, a decrease of 0.1%, and a net loss of 0.029 billion yuan to mother, a decrease of 27.6%. The performance was lower than our expectations, mainly due to pressure on the shipping price of photovoltaic film and increased competition in the industry. On a quarterly basis, 1Q/2Q/3Q24's revenue was -14.1%/+34.6%/-12.5%, respectively, Q1 net profit was +58.4% year-on-year, and Q2/Q3 achieved a net loss of 9.87/24.52 million yuan to mother.

Development trends

1. The shipping price of Q3 photovoltaic film was under pressure, which dragged down revenue growth, and sales of electronic adhesives were improving. In Q3, the company's revenue reached 0.34 billion yuan, a year-on-year decrease of 12.5%. By business, 1) PV film: revenue from 1-3Q24 achieved 0.5 billion yuan, a year-on-year decrease of 3.5%, of which sales volume increased by 32.7% to 89.09 million square meters, and shipments and market share continued to increase. However, under the influence of declining EVA raw material prices and pressure on the overall shipping price of the photovoltaic film industry, the company's average PV film shipping price decreased 27.3% year on year in the first three quarters; 2) Hot melt adhesive: 1-3Q24 revenue reached 0.31 billion yuan, which was basically the same year-on-year. Average sales volume and shipping prices remained flat. Steady; 3) E-glue: 1-3Q24 revenue reached 0.11 billion yuan, an increase of 29.1%, with sales volume/average price increasing by 20.7%/6.9%, respectively.

2. Increased industry competition dragged down Q3 profitability, and focus on subsequent improvement trends. On the gross profit side, the company achieved 7.7% gross margin in Q3, +3pp/ -9.8ppt, respectively, mainly due to increased competition in the PV module industry affecting the gross profit margin of PV film; on the cost side, the Q3 company's sales/management/R&D/finance expense ratios were +0.6pp/ -0.1pp/+0.6ppt, respectively; under the combined influence, the company's Q3 net loss was 24.52 million yuan. The loss margin increased by 0.72 million yuan year on year, and profitability was under pressure in the short term.

3. Pay attention to the prospects for improving the company's subsequent operations under supply-side reforms in the photovoltaic industry. On July 9, 2024, the Ministry of Industry and Information Technology issued a draft for comments on the “Administrative Measures on Specification Conditions and Announcements for the PV Manufacturing Industry”, which plans to guide the PV manufacturing industry to accelerate transformation, upgrading and high-quality development. We believe that as supply-side reforms in the photovoltaic industry advance, the bargaining power of module manufacturers is expected to increase, driving the company's PV film revenue growth and profit improvement.

Profit forecasting and valuation

Considering that the shipping price of photovoltaic film continues to be under pressure, the 2024 net profit forecast was lowered by 60% to 0.1 billion yuan, and the 2025 net profit forecast was introduced for the first time by 0.3 billion yuan. Considering the valuation switch, the current stock price corresponds to 9 times P/E in 2025. Considering the supply-side reforms in the photovoltaic industry, the company's operations are expected to improve, and maintain an outperforming industry rating. Based on the company's short-term operating pressure, the target price was lowered by 36% to 7 yuan, corresponding to 10 times P/E in 2025, with 11% upward space.

risks

Terminal demand fell short of expectations; raw material prices fluctuated; operating cash flow was under pressure.