Incident: The company released its 2024 three-quarter report. The first three quarters of 2024 achieved revenue of 15.174 billion yuan, net profit of 1.258 billion, gross profit margin of -12.1%, gross profit margin 15.6%, +0.9 pct year over year; 24Q3 achieved revenue of 4.411 billion, -26.9% YoY, -19.0% month-on-month, net profit 0.33 billion, YoY -9.7%, year-on-year 3.8pct, month-on-month ratio - 5.2pct.

Performance review: The results for the 3rd quarter of 2024 were under month-on-month pressure, mainly due to phased oversupply in the industry, which led to a sharp drop in the price of photovoltaic film, which in turn caused the company's overall gross margin to decline significantly from month to month. According to Solarzoom, the average price of EVA/POE film including tax in the 3rd quarter was 6.2/10.9 yuan/square meter, down 12%/6% from month to month, respectively. PV film shipments in the 3rd quarter were 0.71 billion flat, relatively flat from month to month. Furthermore, there was a credit impairment rebound of around 0.16 billion in the 3rd quarter.

Financial expenses fluctuated, and cash flow improved substantially. The expense ratio during the 2024Q3 period was 8.4%, up 3.0 ct from month to month; sales/management/ financial/ R&D expenses were 0.6%/1.9%/2.2%/3.6%, respectively, up 0.2%/0.5%/1.9%/0.4%, respectively. Among them, the increase in financial expense ratio was mainly due to fluctuations in exchange profit and loss. Net operating cash flow for the first three quarters of 2024 was 2.79 billion, an increase of 5.078 billion yuan over the previous year, with significant improvements, mainly due to 1) the large amount of notes paid in the current period; 2) the company strengthened collection management and adopted control measures for some risky customers.

The advantages of adhesive film leaders continue to be prominent, and the second growth curve opens up space. As a leader in photovoltaic film, the company has outstanding advantages such as technology iteration, customer resource accumulation, and cost control. The market share continued to increase in the first half of 2024, and it was still able to maintain positive profits even in a state where the photovoltaic industry lost a lot of money. At the same time, the company bucked the trend and expanded film production capacity in Vietnam and Thailand to meet global customer needs, which is expected to improve profit levels. Furthermore, shipments to the electronic materials business, such as photosensitive dry film, grew rapidly year over year, contributing to incremental performance elasticity.

Profit forecast and investment rating: Considering the pressure on profits and related impairment due to the decline in product prices, we revised down the company's performance expectations. We expect the company to achieve net profit of 1.63/2.27/2.96 billion yuan (previous value 1.91/2.43/2.9 billion yuan) in 24-26, -12%/+39%/+30% year-on-year. The PE corresponding to the current stock price is 27/20/15 times, respectively, maintaining the “buy” rating.

Risk warning: PV demand falls short of expectations; competition intensifies; customer introduction pace falls short of expectations, etc.