Incident: The company released its 2024 three-quarter report. The first three quarters of 2024 achieved revenue of 0.239 billion yuan, a year-on-year increase of 14.68%; realized net profit to mother of -0.049 billion yuan, increasing losses year-on-year; deducted non-net profit of -0.049 billion yuan, and losses increased year-on-year. In Q3 2024, revenue was 0.107 billion yuan, up 23.87% year on year and 38.69% month on month; net profit due to mother was -0.013 billion yuan, turning loss year on year, and loss narrowing month-on-month; after deducting non-net profit of -0.012 billion yuan, loss increased year on year, and loss narrowed month-on-month.

Driven by price wars and rising project capacity, the company's performance continued to be under pressure: the company's revenue continued to grow steadily in the first three quarters of 2024. By product: 1) The revenue share of thermal control products has dropped to less than 30%; 2) the electronics sector (including new energy vehicles) accounts for more than 50% of revenue and is gradually expanding; 3) the revenue share of electrical products has remained around 20%. The company's gross margin for the first three quarters of 2024 was 18.14%, -9.48pct; the net margin was -20.35%, -16.67pct; the 2024 Q3 gross margin was 19.05%, -7.66pct, and +5.01pct month-on-month; the net margin was -11.70%, -12.00pct, and +13.61pct month-on-month. The company's profit side was under pressure in the first three quarters, mainly due to increased market competition and falling sales prices for some products. At the same time, since the Jiaxing project is still in the phase of climbing capacity, the fixed cost per unit is relatively high, and financial and management expenses rose due to interest and depreciation charges after the project was put into operation.

The company's sales/management/ R&D/ finance expense ratios for the first three quarters of 2024 were 2.08%/14.39%/10.91%/10.98%, respectively, and the year-on-year change was -0.31/+1.44/-0.64/+5.85pct.

The development of various new products is progressing rapidly, and mass production of optical-grade CPI is progressing in an orderly manner: due to the price war, the price of thermal control PI films has dropped sharply, and the company has actively adjusted the product structure and invested more resources in the electronics field.

The company continues to maintain investment in R&D, accelerate the launch of new 5/6G low dielectric substrates and flexible electronic substrate products, promote upgraded products for high thermal conductivity PI films, increase the development of a series of products for optoelectronic applications, accelerate the application market evaluation of TPI composite films and high thermal conductivity PI films for semiconductor applications, and develop a series of new functional products such as PI varnish for NEV vehicles and PI and CPI paste for OLED substrates. Furthermore, PI products used in semiconductor tape have successfully broken foreign monopolies, entered downstream semiconductor companies, and are used in semiconductor processes, and have now received small-batch orders. The company has now formed a relatively complete CPI R&D and engineering system through the only optical grade CPI film pilot platform in China. The company is working with downstream to promote the optimization of optical grade CPI mass production conditions, while cooperating with application customers to evaluate material performance stability.

The production capacity of the Jiaxing project is gradually being released, and production is expected to reach 40% of the year: the Jiaxing project is currently focusing on product trial production in the electronics and semiconductor fields, including small-batch mass production. At present, the construction of the 1,600-ton new production capacity project in Jiaxing has been basically completed. The status of each production line is as follows: 1) The two production lines will be put into use in September 2023. 2) 2024Q2 added two new production lines and put into use. It mainly promotes new products in the electronics field. Currently, it continues to promote production line process stability and operation verification of various public and auxiliary systems. 3) The remaining two chemical production lines have completed the joint operation of production lines and public and auxiliary facilities. Process and product adjustments are being carried out, process stability is verified, and the entire line is being put into trial production. At present, the progress of each production line is in line with expectations. The production capacity of the project is expected to reach 40% of production throughout the year. The additional production capacity will be distributed accordingly to the release of new products with high technical maturity and conditions for large-scale mass production. Looking forward to the future, the company will adjust the product structure in a timely manner according to changes in market demand, expand the scale of production capacity, export new high value-added products, and ensure competitive advantage. In the short term, the high-frequency acceleration and rail transit PI film market is expanding markedly, and the company will prioritize the corresponding product layout.

Maintaining a “buy” rating: Due to increased market competition and falling sales prices for some companies' products, and the Jiaxing project is in a phase where production capacity is climbing, hampered by rising fixed unit costs and period costs, the company's performance continues to be under pressure. As the company actively adjusts its product structure, accelerates the development of new products, and continuously promotes the optical CPI mass production process, the Jiaxing project gradually releases 1,600 tons of production capacity, and the company's profitability is expected to recover. The company's net profit from 2024 to 2026 is estimated to be -0.055 billion yuan, 0.035 billion yuan, 0.075 billion yuan, EPS is -0.31 yuan, 0.19 yuan, and 0.42 yuan respectively. The corresponding PE for 2025-2026 is 72X and 34X, respectively.

Risk warning: market demand falls short of expectations, market competition risk, production capacity release falls short of expectations, new product verification falls short of expectations