Incident: On April 25, the company released its 2024 quarterly report. It achieved revenue of 542 million yuan in a single quarter, up 27.45% year on year; realized net profit of 31 million yuan, up 151.55% year on year; realized net profit deducted from non-return to mother of 36 million yuan, an increase of 883.58% year on year. Previously, the company released its 2023 annual report, achieving full year operating income of 2,068 billion yuan, a year-on-year decrease of 4.87%; realized net profit of 43 million yuan, a year-on-year decrease of 79.26%; and realized net profit deducted from non-mother of 0.3 million yuan, a year-on-year decrease of 80.37%.
Prosperity gradually picked up, and 24Q1 revenue/performance increased year-on-month:
In 2023, the company's polarizer sales continued to grow, reaching 25.36 million square meters (yoy +10.94%); due to industry cycle fluctuations and intense price competition, ASP fell to 80.94 yuan/㎡ (yoy -13.89%), gross margin fell to 14.81% (yoy-6.61 pct), and 23H2 gross margin showed a quarterly improvement trend, increasing 1.81 pct and 1.41 pct, respectively. The company accrued credit/asset impairment losses totaling 65 million yuan (yoy +427.77%); of these, due to the impact of individual customers, bad debt provisions were 0.3 million yuan, an increase of 44 million yuan over the previous year; affected by the decline in ASP, the calculated inventory price reduction was 32 million yuan, an increase of 10 million yuan over the previous year. 24Q1 achieved revenue of 542 million yuan (yoy +27.45%, qoq +2.61%), achieved net profit of 31 million yuan (yoy +151.55%, month-on-month reverse loss), and gross margin improved markedly from quarter to quarter, reaching 17.27% (yoy+3.05pct, qoq+0.75pct).
The product structure is continuously optimized, and new products are breaking through in volume one after another:
1) Small to medium size:
On the application side, a) Mobile phones: Fully automated cutting production lines for LCD products have achieved technological breakthroughs, and large customers have achieved mass production and shipment. OLED products are the first domestic enterprise to enter small-batch supply to clients. b) Laptop: Currently, the technology is mature, and market development is being strengthened.
On the product side, a) Polarizers for flexible AMOLEDs: the round side for 3D fixed flexible phones passed multiple panel factory tests and mass production was achieved in 24Q1; products for IT applications passed verification by some customers; the company will build a new coating composite production line for AMOLEDs. b) 9μm ultra-thin PVA polarizer: After some customer tests, mass production of 24H2 is expected. c) Ultra high transmittance LCD polarizer: Single transmittance increased from 41% to 43.5%, more than 45% under development; d) Combined 150 μm thick LCD polarizer: mass production is achieved, 130 μm product development is in progress.
e) Foldable polarizer: The construction of a pilot production line was completed in mid-2024.
2) Large-size TVs: The Hefei Phase II 1720mm production line is expected to be put into operation in 2024, ending the company's absence in the 65-inch or higher TV market with high demand; successfully developing hydrophobic polarizers and UV adhesive polarizers to replace TAC materials, which are expected to be mass-produced in 24Q2; polarizers with nationally produced raw materials other than phase compensation films have been certified by customers and achieved small-scale mass production.
3) Automotive: Currently undergoing continuous R&D and iteration at the Putian factory, the iodine polarizer with the pre-baking program has been stabilized at 95℃ x 1000H, and continues to be mass-produced in the aftermarket, and higher temperature-resistant products are being continuously developed; dye-based polarizers have been widely mass-produced in black and white vehicles and other outdoor equipment, and derivatives of high-durability dye polarizers have also made breakthroughs in emerging application fields such as automotive HUD, and applications in automotive AMOLEDs are also being developed.
4) AR/VR and others: Headset folding optical path products are still being iterated, and are being jointly developed and tested with many well-known AR/VR manufacturers; semi-penetrating reverse polarizers are also being promoted and design optimized.
Investment advice: We expect the company's revenue for 2024-2026 to be RMB 2,672 billion, RMB 3.327 billion and RMB 4.145 billion, respectively, and net profit to mother of RMB 192 million, RMB 264 million, and RMB 353 million respectively. We will give it 30 times PE in 2024, corresponding to a target price of 33.05 yuan, and maintain a “buy-A” investment rating.
Risk warning: downstream demand falls short of expectations; capacity release falls short of expectations; industry competition increases risk.