Incident: On April 29, 2024, Tongcheng New Materials released its report for the first quarter of 2024. In the first quarter of 2024, the company achieved revenue of 782 million yuan, an increase of 17.57% year on year; realized net profit of 144 million yuan, an increase of 74.29% year on year; realized deducted non-net profit of 85 million yuan, an increase of 4.05% year on year.
The performance was impressive, and ArF photoresists are expected to start in the second quarter. In 1Q24, in terms of business structure, the company's specialty rubber additives business was 597 million yuan, electronic chemicals business was 156 million yuan, and fully biodegradable materials business was 29.06 million yuan, exceeding market expectations. The sharp increase in performance was mainly due to increased operating profit and revenue generated by investment in joint ventures. In terms of business conditions, as of the first quarter of '24, many of the company's KrF and I-line photoresists have been verified by leading domestic chip companies and storage manufacturers, and will gradually be released in the second quarter of 2024; the company has already completed the development of some models of ArF photoresists. Currently, ArF photoresists have been mass-produced and shipped by leading domestic chip companies, and will enter the gradual release stage. All process indicators of the first batch of ArF photoresists can match the products of major international photoresist manufacturers. The current production capacity can simultaneously supply most domestic chip manufacturers, and can also meet the demand for advanced domestic photoresists.
North Asahi Electronics conveys strength and continues to develop new customers. In terms of photoresists for display panels, the subsidiary Beixu Electronics is the first local manufacturer of positive array photoresists in mainland China. In 2023, along with the smooth implementation of Beixu Electronics' Qianjiang plant capacity improvement project, production capacity reached 8,000 tons/year, and the company has an innate advantage in stabilizing supply. Through the research and development of a series of scientific research and technology projects, the company's technical reserves have been effectively enhanced and the company's leading position in the domestic photoresist industry has been ensured. In terms of new customer development, some customers have begun to introduce testing work, and phased progress has been made. Mass production and sales are expected to be achieved one after another in 2024. Beixu Electronics is actively promoting the introduction and testing of other leading domestic panel customers. At that time, it will rely on new products to further expand the market and rapidly increase its market share.
Promote the fully biodegradable materials business and improve product brand strength. In the development of functional polyester synthesis, the company is developing bio-based PBAT, PBS, PBST, PBSET, etc. for global market needs; in terms of functional specialty additives, the developed novel nucleating agents have been applied downstream, and the performance has improved significantly.
In terms of application development, biodegradable products jointly developed with customers have been promoted and applied in agricultural mulch, express packaging, buffer packaging, laminating, sanitary packaging, plastic wrap, industrial packaging, food composite packaging, fishery cable fishing nets, etc.; the developed special mulch film for rice, greenhouse vegetables, etc. has been promoted in demonstration fields; cooperation has promoted application development in the field of food packaging; the development and production of wrapping film with excellent self-adhesive properties has been recognized by customers; biodegradable woven cloth products have been jointly developed with customers, expanding the application of PBAT in industrial packaging; the development can be applied to paper Composite packaging of aluminum and plastic can better meet the requirements of bending and peeling during actual use, and can be successfully applied to related products.
Investment advice: The company is the leading semiconductor photoresist in China, and we are optimistic about the gradual release of the company's series of products. The company's net profit for 2024-2026 is estimated to be RMB 516/615/761 million yuan, respectively, and the PE corresponding to the current price is 34/29/23 times, respectively, maintaining the “recommended” rating.
Risk warning: risk of product price fluctuations, downstream demand falling short of expectations, technology iteration risk, etc.