Incident: Proposed capital increase of 20% of Idemitsu Electronics shares, successfully extended to OLED terminal materials On June 6, the company announced the signing of a “Joint Venture Agreement” with Idemitsu Electronics shareholders Idemitsu Japan and Idemitsu Shanghai. The company plans to increase Idemitsu Electronics's capital by RMB 76.3984 million in cash with its own capital. After the capital increase is completed, the company will hold 20% of Idemitsu Electronics's shares. Considering that related transactions are still in progress, without considering the impact on the company's operating performance, we maintain profit forecasts. We expect the company's net profit to be 1.99, 2.65, and 336 million yuan for 2024-2026, corresponding EPS of 1.48, 1.96, and 2.49 yuan/share. The current stock price corresponds to PE of 22.2, 16.7, and 13.2 times. We are optimistic that the company will expand from pre-OLED sublimation materials to the downstream terminal materials field, promote production capacity expansion and customer expansion in an orderly manner, and maintain a “buy” rating.

The medium penetration rate of OLEDs is expected to increase. Idemitsu Japan is a global leader in OLED blue light main materials According to the company's announcement, Idemitsu Japan is the world leader in OLED blue light main materials. Its OLED light-emitting materials rank first in the global market share. Idemitsu Electronics is the only OLED light-emitting material manufacturing base established by Idemitsu Japan in China. According to Idemitsu Japan's official website, the Group mainly operates 3 factories to meet the growing demand for OLED materials, in Japan, South Korea, and Chengdu, China. The 2023 annual report revealed the Group's OLED material production capacity of 26 tons/year. With the release of high-generation OLED panel production capacity and the expansion of product application boundaries, we are optimistic that the penetration rate of OLED medium sizes will gradually increase, and the prospects for OLED materials can be expected. We believe that the completion of this transaction will help Ruilian New Materials establish a deeper strategic partnership with customers, promote the expansion of the company's OLED business from pre-sublimation materials to downstream OLED terminal materials, and enhance market competitiveness and profitability.

The controlling shareholder of the company may be changed to Qingdao Investment Group. The new equity incentive plan anchors medium- to long-term growth. On May 11, the company announced the 2024 Restricted Stock Incentive Plan (draft), which intends to grant 6.713 million shares of restricted shares. The grant price (including reserved grants) is 19.73 yuan/share. The equity incentive assessment period is 2024-2027. The assessment indicators cover operating income or deduction of non-net profit. Without considering the impact of share payments under this and other equity incentive plans, we estimate the company's target operating income CAGR of 27.4% and the target deducted non-net profit CAGR of 32.1% for 2023-2027, which is expected to lay a solid foundation for the company's medium- to long-term growth.

Risk warning: Investment progress falls short of expectations, changes in control, display technology iterations, etc.