Profitability declined in 2022. In 2022, the company achieved operating income of 504 million yuan, or 21.28% year on year; net profit returned to the mother was 65.35 million yuan, -47.17% year on year. Looking at a single quarter, 1Q22-4Q22 achieved net profit of 29.36 million yuan, 21.23 million yuan, 8.1 million yuan, and 6.67 million yuan respectively. The company's profit declined in 2022, mainly due to rising prices of upstream raw materials, weakening downstream demand for consumer electronics, etc., and 3Q22 being affected by high temperatures, which led to power outages during some periods. The company plans to distribute a cash dividend of 10 yuan (tax included) for every 10 shares to all shareholders.

Film production and sales volume declined year over year, and profit per ton was under pressure. In 2022, the company produced 44,300 tons of polyester film, -13.95% year on year; sales volume was 392,000 tons, -22.12% year on year; production and sales rate was 88.40%, down 9.27 percentage points from the previous year. According to our estimates, in 2022, the company's single-ton film sales price (excluding tax) was about 12,664 yuan/ton, +1.05% compared to the same period last year, which remained stable. We think it was mainly due to the increase in the sales ratio of the company's high unit price of colored photoelectric substrates and other functional films; the net profit of a single ton film to the mother was 1,668 yuan/ton, -32.17% year on year.

Film production capacity is steadily expanding, and downstream application areas are being expanded. In 2022, the company has a film production capacity of 42,000 tons, and a production capacity of 73,000 tons under construction (including 38,000 tons of fund-raising projects and 35,000 tons of self-funded construction projects). It is expected that production will be put into operation one after another in 2023. The additional production capacity will further increase the order acceptance capacity for products in the fields of optical film substrates, photovoltaics, new energy, etc. Among them, the 38,000-ton fund-raising project is expected to invest 436 million yuan. The planned production capacity includes 18,000 tons/year of functional films (tinted photoelectric substrates, transparent films and other functional films) and 20,000 tons/year of optical substrates to enrich the company's product range.

Adhere to technological innovation and focus on “differentiation and functionality”. The company insists on R&D investment, investing more than 20 million yuan/year in 2021-2022. In 2023, the R&D center at the company headquarters will be completed and put into operation. Based on the existing technical system, the development of special films in consumer electronics, new energy, automobiles and other industries will be further deepened on the basis of functional films such as tinted photoelectric substrates, window films and battery cell-specific films, and optical substrates such as ITO.

Profit forecasts and investment ratings. We expect the company's net profit of 2023-2025 to be 109 million yuan, 214 million yuan and 282 million yuan respectively (previous forecast: 2022-2024 will be 138 million yuan, 195 million yuan and 284 million yuan respectively), EPS will be 136, 2.67, and 3.52 yuan respectively (previous forecast: 2022-2024 will be 1.72, 2.44, 3.54 yuan respectively), and BPS in 2023 19.11 yuan (previous forecast: 2022 BPS will be BPS of 2022 21.2 yuan).

Referring to the valuation of comparable companies, according to PE 28 times in 2023, the target price was 38.08 yuan, corresponding to PB 2.0 times 2023 (original target price of 41.28 yuan, corresponding to PE 24 times in 2022, PB 1.95 times, down 7.75%), maintaining the “superior market” rating.

Risk warning: Product prices fluctuate greatly; progress of new projects falls short of expectations; prices of upstream raw materials fluctuate greatly.