Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, it achieved revenue of 0.242 billion yuan, a year-on-year decrease of 10.30%; realized net profit to mother -0.04 billion yuan, an increase of 24.46% year on year; realized deducted non-net profit of -0.057 billion yuan, an increase of 11.72% year on year. In Q3 2024, revenue was 0.093 billion yuan, down 4.64% year on year and 14.81% month on month; realized net profit to mother - -0.018 billion yuan, down 99.63% year on year, down 127.97% month on month; realized deduction of non-net profit - -0.022 billion yuan, down 71.58% year on year and 65.98% month on month.

The company's performance continues to be under pressure, and the shielding film business is expected to grow this year: the company's revenue declined slightly year-on-year in the first three quarters of 2024, mainly due to increased market competition in the smartphone market and FPC industry, declining industry profit margins, the industrial chain showing a trend of cost reduction, and the company's shielding film volume and price plummeted. Consumer electronics continues to recover, and the company has successfully obtained the qualification as the main supplier of shielding film for the latest flagship models of related leading mobile phones. The company's shielding film business is expected to grow well this year. The company's gross margin for the first three quarters of 2024 was 30.60%, +0.78pct; the net margin was -14.58, +3.82pct; the 2024 Q3 gross margin was 28.86%, -8.34pct, -4.98pct; the net margin was -17.36%, -9.65pct, and -9.53pct month-on-month. The company's performance in the first three quarters was under pressure, mainly due to: 1) The company's R&D expenses increased year-on-year in the fields of peelable copper, flexible copper-clad plates, shielding films, thin-film resistors, etc., which were affected by development progress and customer certification schedules. 2) The company increased the introduction of talents in technology research and development, manufacturing, quality management, etc., and labor costs increased year-on-year. The company's sales/management/R&D/finance expense ratios for the first three quarters of 2024 were 2.97%/17.12%/22.33%/1.69%, respectively, with year-on-year changes of -0.03/+3.17/+5.59/+1.15pct, respectively.

Production development of new products progressed in an orderly manner, and the volume was gradually accelerated in the second half of this year: the company's related new products progressed in an orderly manner, including: 1) Ultra-thin copper foil with a carrier, which has passed relevant certifications one after another from the third quarter of last year to September of this year, and continues to be shipped in small quantities. It is expected to pass some downstream mass production certifications and factory audits in the second half of this year, which is expected to drive further order volume. 2) Flexible copper-clad sheets. Self-produced FCCL products have achieved sales on a certain scale in the first half of this year, and are gradually penetrating the downstream market. It is expected that orders will accelerate in the second half of this year, and strive to achieve annual sales of 0.2-0.3 million square meters, which will gradually become the company's new growth curve. Self-produced copper foil+self-produced FCCL produced PI/TPI. Downstream testing and certification was carried out in an orderly manner. 3) Thin-film resistors have been continuously shipped in small batches. The second half of the year will speed up the certification process, promote more downstream certifications, and gradually achieve mass production breakthroughs. At the same time, the development and downstream certification of heat-sensitive thin film resistors will be increased. 4) The company uses its own peelable copper, ABF-like resin materials and synthetic technology to develop cutting-edge products related to RCC, FRCC, ultra-thin dielectric layer FCCL, etc., and carry out downstream testing and certification work.

The company took a stake in COF manufacturer Jiangsu Shangda and is optimistic about domestic substitutation+industrial synergy advantages: COF is an important part of the upstream materials in the flat panel display industry chain and is one of the key materials necessary to produce semiconductor chips. With the rapid development of the high-definition display industry, the domestic COF production capacity self-sufficiency rate is seriously insufficient, and domestic replacement demand has formed a good market space. In order to further improve and enhance the industrial layout, the company plans to increase capital to Jiangsu Shangda Semiconductor Co., Ltd. with 0.015 billion yuan of its own capital through its wholly-owned subsidiary Suibang Electronics. After the capital increase, Suibang Electronics will hold 0.4975% of Jiangsu Shangda's shares. Jiangsu Shangda is the main COF supplier in China, with a production capacity of 60 kk/month in 2024. It mainly serves well-known domestic IC design companies and semiconductor packaging and testing companies such as Qizhong Technology, Tongfu Microelectronics, and Jichuang North. Currently, it has achieved stable mass production of 8 μm single-sided COF substrates. The technical level is at an advanced level in China, and the product has been industrialized. 2024H1 Jiangsu Shangda achieved revenue of 0.153 billion yuan and net profit of -0.029 billion yuan. The company has some synergy with Jiangsu Shangda's business. One of the main raw materials for COF substrates is FCLL (flexible copper clad plate). At present, the company has set up the FCLL business. By strengthening exchanges and cooperation with Jiangsu Shangda, it will effectively accelerate the development, testing, certification and industrialization of ultra-thin FCLL, thereby enhancing the company's business performance and core competitiveness.

Maintaining the “increase” rating: The company's new products have passed relevant certifications one after another and continue to be shipped in small batches. At the same time, it is expected that more new product certification and volume will be promoted in the second half of this year. At the same time, the company will take a stake in COF manufacturer Jiangsu Shangda, to improve and enhance the industrial layout to enhance the company's core competitiveness. As demand in the global mobile phone market picks up, the company's profitability is expected to recover in the future. The company's net profit from 2024 to 2026 is estimated to be -0.04 billion yuan, 0.05 billion yuan, and 0.135 billion yuan, and EPS is -0.50 yuan, 0.63 yuan, and 1.67 yuan respectively, corresponding to 2025-2026 PE 59X and 22X respectively.

Risk warning: risk of macroeconomic fluctuations, downstream demand falling short of expectations, risk of fluctuations in raw material prices, impact of exchange rate fluctuations.