occurrences

The company announced results for the third quarter of 2024. 2024Q1-Q3 achieved revenue of 2.007 billion yuan, +33.13% YoY, net profit attributable to mother 0.054 billion yuan, or -36.24% YoY; net profit not attributable to mother 0.032 billion yuan, or -46.46% YoY.

2024Q3 achieved revenue of 0.67 billion yuan, +26.69% year over year, net profit to mother of 0.021 billion yuan, +6.48% year over year, net profit of 0.01 billion yuan after deducting non-return net profit of 0.01 billion yuan, +1.89% year over year.

Comment:

New projects were put into operation and sales climbed, and operating cash flow improved year-on-year. As the production lines of the PTE3 line, PVD magnetron sputtering film project, and some functional tape projects reached the scheduled state of use, 2024Q3 achieved revenue of 0.67 billion yuan, +26.69% year over month, and -0.37% month over month; due to depreciation of fixed assets, gross margin was under pressure of -3.19 pct to 26.28% year on year, but improved +3.83 pct month-on-month. On the cost side, the cost rate for the four items of 2024Q3 was 24.58%, -1.93pct year on year, +1.85pct month-on-month, of which the financial expense ratio was 4.75%, +2.15pct year over year, and +0.46pct month-on-month, mainly due to the completion and consolidation of multiple projects, and the shift from capitalization to cost. The profit side recovered month-on-month, and 2024Q3 achieved a net profit margin of 3.14%, -0.60pct year over year, and +1.05pct month-on-month; net profit to mother 0.021 billion yuan, +6.48% year-on-year, and +49.92% month-on-month. 2024Q3 operating cash flow changed from negative to 0.046 billion yuan year-on-year, -36.10% month-on-month, mainly due to improvements in business scale and operating efficiency, and increased government subsidies; capital expenditure was drastically reduced to 0.124 billion yuan, -54.79% year-on-year, and -11.32% month-on-month.

OCA products have significant advantages and are expected to be accelerated in line with industry trends. The company's self-developed OCA optical adhesive products break the monopoly of international giants. The main advantages are: 1) they can be completed within the entire industry chain, the cost is controllable, and the process route is comprehensive; 2) the main formulations and process capabilities can withstand testing, and the customer verification resources are sufficient. With the rapid rise of emerging industries such as AR/VR, flexible displays, and new energy vehicles, the company's OCA optical adhesive products can be widely used in high-end applications such as headsets, folding screens, automotive displays, and smart homes through downstream die-cutting plants, laminating factories, battery factories, etc. With the continuous recovery of consumer electronics, the increase in smart device shipments, and the gradual implementation of localization and substitution, OCA products are expected to accelerate volume and continue to increase the company's profits.

Profit forecast and investment rating: Due to short-term pressure on performance due to project transformation and increased depreciation, we partially lowered our profit forecast. We expect the company to achieve operating income of 2.726/3.575/4.326 billion yuan and net profit to mother 0.087/0.183/0.286 billion yuan in 2024-2026, corresponding PE is 81.85/38.79/24.85 times, maintaining a “buy” rating.

Risk warning: raw material prices fluctuate; demand falls short of expectations; industry competition intensifies