Incident: On October 27, 2023, the company released its three-quarter report for 2023. The first three quarters achieved a total revenue of 932 million yuan, -21.61% of the same period; net profit of 98 million yuan, -53.12%; net profit of 98 million yuan, minus 53.12%; and deducted non-net profit of 87 million yuan, -56.01% year-on-year. Among them, Q3 achieved revenue of 316 million yuan in a single quarter, +8.31% year-on-year, -7.63%; net profit of 40 million yuan, -17.17%, -10.08%; and net profit after deducting 35 million yuan, -21.19% year-on-year and -14.37% month-on-month.
Demand in the LCD market has picked up, and the release of new Q4 products is expected to drive an increase in demand for display materials: the company's main business includes LCD materials and OLED materials, which are highly correlated with downstream consumer electronics shipments. According to IDC and RUNTO statistics, 2023Q3 China's mobile phone and TV shipments in the single quarter were +2.05% and +1.11%, respectively, and overall market demand rebounded. However, in the OLED sector, sales of deuterium-substituted materials have been affected to a certain extent due to the average sales of large-size televisions in the terminal consumer electronics market; in addition to deuterium-substituted materials, the revenue situation of other materials in the OLED sector has increased. As manufacturers such as Huawei, Apple, and Xiaomi release new products, it is expected that overall consumer electronics shipments in the fourth quarter will improve month-on-month, leading to a recovery in the company's performance.
Gross margin rebounded in the third quarter, and new product release is expected to continue to drive profitability improvement: according to the company announcement, the company's gross margin for the third quarter was about 37.59%, up 4.72 percentage points from the previous month; net profit margin for the third quarter was about 12.59%, down 0.34 percentage points from the previous month, mainly due to an increase in the company's R&D expenses, etc.
At the same time, the company is currently steadily advancing the construction of various electronic materials, including semiconductor photoresist, panel photoresist, and polyimide monomers. Among them, a pilot product of a high-end photoresist monomer has passed verification and has already sold several hundred kilograms. The photoresist project is expected to be put into trial operation by the end of 2024. Additionally, the company's GMP workshop certification is expected to be completed in the third quarter of 2024. It is expected that the production of APIs will be realized after the verification is completed. Overall, the continuous enrichment of electronic materials and the passage of certification in the pharmaceutical field are expected to promote the company's growth.
Investment suggestions: The company is an important domestic display materials enterprise. It has deep technology accumulation, and is gradually expanding into the fields of pharmaceutical CDMO and electronic chemicals to create incremental growth. We expect the company to achieve operating income of 1,500/18.70/2,313 billion yuan and net profit of 1.58/2.59/356 million yuan in 2023-2025, corresponding to PE of 28.79/17.52/12.76 times, respectively, maintaining the “increased holdings” rating.
Risk warning: demand falls short of expected risk; product verification progress falls short of expected risk; construction project commissioning time falls short of anticipated risk