The company released the 2023 performance report, and profit changed from profit to loss year over year. The price of photovoltaic film is under phased pressure, and profitability is under pressure due to unfavorable fluctuations in raw material prices; particle prices bottomed out or contributed to a rebound in film prices; and the rating of increasing holdings was maintained.

Key points to support ratings

The company's performance changed from profit to loss in 2023: The company released a quick report on its 2023 performance report, and achieved profit of 236 million yuan for the whole year, a year-on-year decrease of 572.05%, and realized deduction of nonprofit of 251 million yuan, a year-on-year decrease of 984.72%. Based on the company's performance calculation, 2023Q4's profit is 161 million yuan, after deducting non-profit - 153 million yuan. The company previously issued a performance forecast. The company's annual profit is expected to be -2.4 to 220 million yuan, and the company's performance is within the performance forecast range.

The gross margin of the adhesive film declined, leading to losses: the price of EVA particles, the raw material for adhesive film fell rapidly in 2023. On the one hand, it led to a drop in the price of EVA products, and on the other hand, the company's continuous inventory depreciation. According to data from Solbi Consulting, as of January 3, 2024, the price of raw EVA particles dropped to 11,000 yuan/ton, down about 23% from the beginning of 2023. The unit prices of transparent EVA film and POE film dropped to 7.24 yuan/m2 and 14.06 yuan/m2 respectively, down about 28% and 12% from the beginning of 2023, respectively, and the company's film gross margin was damaged. The company's impairment amount was large in 2023. In the first three quarters, the company's asset impairment losses were about 110 million yuan. Of these, the inventory price of EVA resin and related products fell by about 80 million yuan in Q3 due to falling plastic film order prices and high inventory costs. As EVA particles and adhesive film prices continued to decline in Q4, impairment or impact on the company's profits.

The price rebound of particles and film combined with the application of new products. The company's fundamentals improved: Since 2024, the price of EVA particles and film has bottomed out. According to Soby's consulting data, as of February 22, the price of EVA had risen to 121,000 yuan/ton, and the unit price of transparent EVA film had risen to 7.48 yuan/m2, and the fundamentals of adhesive film are expected to recover. In terms of new fields, the company's single-layer POE film has achieved stable application in BC components, and the proportion of new EPE film used in Topco modules has increased rapidly.

Increase repurchase amounts to boost investor confidence: On February 7, the company announced that it would increase the total share repurchase capital from 30 to 50 million yuan to 70 to 90 million yuan. As of January 31, the company had repurchased 659,800 shares at a transaction price of 44.20-95.45 yuan/share, and paid a total capital of 47.7 million yuan.

valuations

Considering the decline in the price of EVA particles driving down film prices and the release of production capacity in the EVA film industry, we adjusted the company's forecast earnings per share for 2023-2025 to -2.81/1.76/2.54 yuan (the original forecast earnings per share for 2023-2025 was 5.39/9.08/12.17 yuan), corresponding to a price-earnings ratio of -17.6/28.2/19.5 times; due to the phased stabilization of EVA particle prices, film prices are expected to recover, and maintain the growth rating.

The main risks faced by ratings

Raw material costs fell short of expectations; price competition exceeded expectations; risk of international trade friction; risk of technological iteration; policy did not meet expectations.