Incident: Kaisheng Technology released its 2024 mid-year report. 24H1 achieved revenue/net profit attributable to mother/net profit deducted from mother of 2.22/0.04/-0.03 billion yuan, -9.6%/47.6%/profit to loss compared to the same period last year. 24H1 net operating cash flow was 0.03 billion yuan, -0.18 billion yuan year over year. Single Q2 achieved revenue/net profit attributable to mothers/net profit excluding non-attributable net profit of 0.95/0.03/0.001 billion yuan, year-on-year, -19.5%/-43.1%/-97.9%, and net operating cash flow of 0.06 billion yuan, or -0.13 billion yuan year-on-year.
Gross margin increased, and rising cost ratios dragged down profitability: 24H1 comprehensive gross profit margin of 15.8%, +2.4 pcts year over year. The estimate shows the contribution of material gross margin increase. The cost rate for the period was 15.3%, +4.0pcts; the sales/management/finance/R&D expense ratio was 2.4%/5.7%/1.9%/5.2%, +0.5/+1.0/+1.2/+1.3pcts year-on-year, mainly due to declining revenue. The final net sales margin was 2.9%, -1.3 pcts year over year. In addition, 24H1's net operating cash flow was 0.03 billion yuan, -0.18 billion yuan year-on-year, mainly due to an increase in cash payments from purchasing goods and receiving labor services.
The consolidated gross margin for a single Q2 was 17.7%, +3.9 pcts; the period expense ratio was 15.4%, +5.7pcts year over year; sales/management/R&D/finance expense ratios were 2.7%/6.2%/4.2%/2.2%, respectively, +1.0/+2.1/+2.6 pcts year over year. Combined with Q2 receiving government subsidies, other revenue was +0.02 billion yuan year on year, and the final net sales margin was 4.3%, -0.7 pcts year over year. Furthermore, Q2 net operating cash flow was 0.06 billion yuan, -0.13 billion yuan year over year.
Revenue from display & application materials declined due to weak demand: 24H1 new display/application materials achieved revenue of 1.55/0.67 billion yuan, -32.9%/-23.2% year-on-year; gross margin was 14.4%/18.8%, +6.6/-2.2pct year on year.
1) In terms of display materials, Shenzhen Guoxian (holding 75.6% of shares) achieved revenue/net profit of 1.3/0.05 billion yuan, -24.3%/+44.8% year-on-year, with a net interest rate of 4.1%, +2.0pcts year on year; Longhai Glass achieved revenue/net profit of 0.08/-0.01 billion yuan. 2) In terms of applied materials, the subsidiary Bengbu Zhongheng achieved revenue/net profit of 0.47/0.05 billion yuan, year-on-year, -12.4%/-3.1%, net interest rate of 11.3%, year-on-year +1.1 pcts; Kaisheng Yingcai (holding 62.6% of shares) realized revenue/net profit of 0.26/0.04 billion yuan, or a net profit ratio of 15.4% year-on-year, -15.6 pcts year on year, or a significant decline in the price of high-purity quartz sand.
UTG is expected to expand, and the application material scenario continues to expand: the company's ultra-thin flexible glass (UTG) phase II project already has production capacity in 4 production lines, and has introduced many customer resource pools such as downstream panel companies and terminal manufacturers in the market, and yield and production capacity have been steadily increasing. Currently, the company's UTG products are exclusively “Red Flag? The “Guoya” sedan is the world's first 14.2-inch on-board skid curl display. Application material scenarios continue to expand, such as zirconia series products entering the field of advanced glazes and advanced ceramics at an accelerated pace, doubling the supply of zirconia for foam ceramic filters, and batch supply of nano zirconia in the new energy battery and hydrogen energy industries.
Profit forecast, valuation and rating: Considering weak downstream demand, we lowered our 24-26 net profit forecast to 1.70 /0.232/0.286 billion yuan (-19%/-21%/-18% YoY) to maintain an “gain” rating.
Risk warning: UTG customer expansion falls short of expectations, demand in downstream photovoltaic and other industries continues to be under pressure, and production capacity investment falls short of expectations.