1H23 performance fell short of our expectations

The company announced 1H23 results: revenue of 2,221 million yuan, -1.66% year on year; net profit due to mother of 0.5 million yuan, year-on-year ratio of -71.25%, corresponding to profit of 0.11 yuan per share; 2Q23 quarterly revenue of 1.18 billion yuan, +1.67%, month-on-month +13.35%, net profit of 17 million yuan, -80.16% year-on-year, -48.49%, lower than our expectations. It is mainly due to a decrease in the volume and price of photovoltaic film, a decrease in profitability due to the digestion of high-priced particle inventories, and reduced demand for transportation and electrical materials The result.

Development trends

2Q23 Demand for downstream components fell short of expectations, and the company's profit was under slight pressure. By business, 2Q23, the company's backboard sales volume was 39 million square meters, -3.2% year on month, -4.2% month on month, average sales price was 9.44 yuan/square meter, -20.4% year on month, +3.6% month on month; adhesive film sales volume was 64 million square meters, +49.77% year on year, +4.30% month on month, and average sales price was 9.68 yuan/flat, -32.92% year on month, +2.98%. We believe Q2 is affected by the continuous decline in silicon prices, and component manufacturers are on the sidelines, resulting in demand falling short of expectations. Currently, with the price of silicon materials bottoming out and stabilizing, the operating rate of components has increased dramatically, and demand for adhesive film backsheets is expected to be greatly boosted. At the same time, the company's inventory of high-priced raw materials for adhesive film has been digested, and profit recovery can be expected in the second half of the year.

The product structure of the photovoltaic business continues to be optimized, and it is optimistic that the company will overtake cars at a curve in the N-type era. The company is increasing technology research and development efforts in the photovoltaic field and promoting changes in N-type module packaging solutions. In terms of adhesive film, the company implemented light-transfer adhesive film suitable for HJT components in February (Raybo? (Film) mass production, 1H23 phototransfer film shipments +413.67% month-on-month. Currently, the number of customers has expanded from Huasheng New Energy to 5, while promoting localization of phototransfer agents to reduce costs. In terms of backplanes, the product matrix has been continuously improved, and the black highly reflective backplate has been sold to head component manufacturers such as Tianhe, Artes, and Aixu. We are optimistic that the company will seize the opportunities of the N-type era, and that the increase in the share of shipments of highly technical difficulties and high-net-worth products will drive profit improvement.

New products of power battery materials are constantly emerging, and the consumer electronics materials business can be expected to expand. The company promotes cost reduction of old products by reducing the proportion of OEM and optimizing processes, while maintaining technological leadership through continuous research and development. Currently, CCS hot press films, high-shear blue films, etc. have obvious competitive advantages, and new high-heat-resistant insulating films are shipped in batches. Furthermore, the new production capacity of the company's Wujiang Jiulong plant is gradually being released, supporting the expansion of the consumer electronics materials business. We believe that the trend of diversification of the company's business continues and is expected to usher in a second growth curve in performance.

Profit forecasting and valuation

Due to pressure on the company's profit, we lowered our 2023/2024 net profit by 74%/65% to 1.29/254 million yuan, maintaining our outperforming industry rating. Considering the strong certainty of film profit repair in the second half of the year and next year, we will switch the valuation center to 2024, lower the target price by 28% to 18.44 yuan, corresponding to 32xP/E in '24, corresponding to 32xP/E in '24. The current stock price corresponds to 29x P/E in 2024.

risks

Downstream demand falls short of expectations, risk of raw material price fluctuations, risk of product technology iteration.