The company is a global leader in reflective film and is actively promoting production capacity layout. New film products are expected to become an important growth point in the future. We maintain the company's 2023-2025 EPS forecast of 0.55/ 0.74/0.88 yuan. Referring to the company's historical valuation, we believe that in 2023, 30 times PE is a reasonable valuation level for the company (corresponding to the historical 14th quartile), corresponding to the target price of 17 yuan, maintaining the “buy” rating.

2023H1 revenue increased 3.49% year over year, and return net profit decreased 24.56% year over year. In 2023H1, the company achieved revenue of 564 million yuan, +3.49%; realized net profit of 61 million yuan, or -24.56% of the same period; realized net profit of 44 million yuan after deducting non-return net profit of 44 million yuan, or 35.28% of the same period. In 23Q2, the company achieved revenue of 313 million yuan in a single quarter, +20.51% year on year, +24.67% month on month; realized net profit of 36 million yuan, -20.70% year on year, +43.67% month on month; achieved net profit of 29 million yuan after deducting non-return net profit of 29 million yuan, -27.99% year on year, and +94.85% month on month.

In the first half of 2023, the shipping area of reflective film, the company's main product, exceeded the same period in history, and sales revenue increased year-on-year. Projects such as diaphragms are still in the construction investment period, production capacity has yet to be released, and there are some losses; at the same time, due to the market supply and demand structure, company inventory clearance, etc., the gross margin of optical substrates declined year-on-year, resulting in a year-on-year decline in Gimu's net profit.

The 2023H1 four rate increased by 3.66 percentage points over the same period last year, and net cash flow from operating activities was 90 million yuan. From the cost side, the company's 2023H1 sales/management/R&D/financial expense ratio was 3.98%/7.34%/5.56%/-1.82%, respectively, a change of +0.25/+2.35/-0.87/+1.92 pcts over the same period last year.

The total cost rate of the four fees was 15.06%, an increase of 3.66 pcts over 11.41% in the same period last year. The increase in management expenses was mainly due to loss of work stoppage and increased construction investment costs for subsidiaries; the increase in R&D expenses was mainly due to a decrease in exchange earnings. Judging from the cash flow situation, the net cash flow generated by the company's 2023H1 operating activities was 90 million yuan, +47.61% year-on-year. This is mainly due to a decrease in cash for purchasing goods and receiving labor payments, and an increase in receipt of government subsidies and VAT withholding tax refunds.

Continue to promote R&D innovation to develop new products and maintain the competitiveness of core products. The company is committed to advancing the strategic development goal of “ten years and ten films” by continuously increasing investment in R&D, continuously innovating technology based on core technology reserves, continuously developing new products, expanding new fields, and advancing the strategic development goal of “ten years and ten films”. 1) In terms of reflective films, the company has deepened formulations and processes, continuously reduced manufacturing costs while improving product performance, and maintaining the long-term competitiveness of reflective films. In addition, optimize the development of applications such as mini LED reflective films, small to medium sized reflective films, blister reflective films, etc., to expand product application areas and enhance product competitiveness; 2) In terms of optical substrates, the company focuses on improving key indicators such as transmittance, haze, appearance, and adhesion of optical substrates. The application areas continue to expand, and products such as OCA release film substrates have been shipped in stable batches; 3) In terms of separators, the company has developed diaphragm products with different performance specifications. The dry method product line has been installed and tested, and the development of corresponding products continues to be promoted. and verification; 4) In addition, the company accelerated the development and verification of projects such as CPI film (transparent polyimide film); completed the development and verification of photovoltaic adhesive film products and achieved small-batch shipping; completed breakthroughs in difficult points of TPX release film, and achieved corresponding shipments.

Actively and steadily lay out production capacity for key projects and accumulate new momentum for long-term development. The Hefei optical base film and lithium-ion battery separator project is an important driving force for the company's future business. In the first half of 2023, the construction of the above project was in line with expectations. The company's dry method products were certified by mainstream customers, produced and shipped in small batches, and the wet process production line was installed and commissioned. In the second half of the year, with the release of production capacity for diaphragms and optical substrates, it will help the company further expand its business scale, enhance its market development capabilities, and enhance the company's overall competitiveness. In addition, the company has laid out a lithium-ion battery separator project with an annual output of 400 million square meters for energy storage and power vehicles and a photovoltaic packaging film project with an annual output of 20 million square meters in Zhoushan. Among them, the photovoltaic packaging film project has completed product development and verification, and has achieved small-batch shipments.

Risk factors: raw material prices fluctuate greatly; downstream demand shrinks; market competition intensifies; capacity building falls short of expectations; customer verification progress for new products falls short of expectations.

Profit prediction, valuation and rating: The company is a global leader in reflective film and is actively promoting production capacity layout. New film products are expected to become an important growth point in the future. We maintain the company's 2023-2025 EPS forecast of 0.55/0.74/0.88 yuan. Referring to the company's historical valuation, we believe that in 2023, 30 times PE is a reasonable valuation level for the company (corresponding to the historical 14th quartile), corresponding to the target price of 17 yuan, maintaining the “buy” rating.