Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 0.464 billion yuan, an increase of 11.89% over the previous year; realized net profit to mother of 0.101 billion yuan, an increase of 3.60% over the previous year; and realized deduction of 0.066 billion yuan in non-net profit, a year-on-year decrease of 15.50%. In 2024, Q3 achieved operating income of 0.122 billion yuan, a year-on-year increase of 40.25% and a month-on-month increase of 45.11%; net profit to mother was 0.009 billion yuan, an increase of 3579.79% year-on-year, which significantly reversed losses month-on-month; after deducting non-net profit of 0.003 billion yuan, the loss was significantly reversed from month to month.

Q3 performance improved significantly year-on-year, and profitability recovered rapidly: In Q3 2024, the company's materials and equipment business continued to maintain a strong comparative advantage through continuous innovation, driving rapid growth in the company's operating income and net profit attributable to shareholders of listed companies. In terms of profitability, the company's comprehensive gross margin in Q3 2024 was 50.43%, up 1.63 pcts year on year; the net margin was 7.76%, 7.46 pcts year on year, mainly due to a sharp drop in the company's overall cost ratio during the period. In terms of expenses, the company's sales, management, R&D, and finance expenses in Q3 2024 were 3.63%/19.96%/27.80%/-0.47%, respectively, with year-on-year changes of -2.13/-11.19/-3.02/+1.60pcts, respectively.

The organic light-emitting materials business performed well, with multiple breakthroughs in the evaporation source equipment business: H1 in 2024, the company laid out products around the OLED materials business to seize incremental opportunities for localization and substitution in the materials market. In terms of organic light-emitting materials, the company's dominant products, GreenPrime, RedPrime, and BluePrime, have all been introduced into production lines to achieve stable supply; the development of red and green main materials and mixed materials is progressing smoothly and has been sent to customers for verification. At the same time, in the process of developing and localizing materials such as packaging materials and PSPI, which are the core materials that limit and influence the development of the flexible OLED display industry, the company has continuously improved product performance and deepened cooperation with customers, all of which have achieved production line supply. Among them, PSPI Materials achieved revenue of 11.005 million yuan in the first half of the year. In terms of equipment business, as a leading manufacturer of 6th generation AMOLED linear evaporation sources, the company keenly grasps market trends and provides services such as upgrading of evaporation source equipment according to customer needs. In H1 in '24, the company received an order for the Mianyang BOE evaporation source transformation project and successfully won the bid for the Wuhan Tianma evaporation source transformation project; the company's high-generation evaporation source R&D project closely followed the production line construction plan, completed the preparation of an 8.6-generation linear evaporation source prototype, and is undergoing testing and marketing. In the future, as panel manufacturers tender for evaporation source equipment, the company's equipment business is expected to welcome additional volume.

The penetration rate of OLED continues to increase, and the trend of domestic substitution is getting stronger: with advantages such as high contrast, bendability, and rapid response, OLED application scenarios and market boundaries are constantly expanding. The company's 2023 annual report indicates that in the field of small-size displays, according to CINNO Research statistics, AMOLED smartphone panel shipments in the global market in 2023 were about 0.69 billion pieces, up 16.1% year on year. Among them, Q4 shipments increased 30.9% year on year and 35.1% month on month. The penetration rate of OLED in smartphones has climbed to 48%, and the OLED penetration rate is expected to increase to 55% in 2024; in the field of medium and large size displays, according to market research institutes DSCC predicts that OLED tablet panel revenue is expected to exceed 2 billion US dollars in 2026; in addition, OLED technology has shown impressive performance in products such as laptops, vehicles, and TVs, gradually opening up market space for medium to large display products. In order to meet market demand, head panel manufacturers have successively increased their investment in higher-generation OLED production lines. The company said that according to public market information, BOE has officially started construction of the first 8.6th generation AMOLED production line in China, which BOE invested 63 billion yuan to build, and panel manufacturers such as Vicino said they will carefully advance higher-generation production line projects according to market demand and the company's development plans. Domestic materials and equipment manufacturers are expected to benefit from the continuous increase in OLED penetration rate and the development trend of the localized substitution industry.

Maintaining the “gain” rating: The company's main business is R&D, manufacturing and sales of organic light-emitting materials and evaporation source equipment. It is a leading domestic manufacturer of OLED organic materials, and it is also one of the few companies in the world that can develop and industrialize high-performance linear evaporation sources for higher generations. Since 2023, the company's materials business has shown good development resilience. The equipment business continues to maintain its leading edge in the segmented field, fully exploited the sixth-generation evaporation source market, and initially completed the transformation from a single evaporation source business to production line transformation and perovskite preparation. In the future, as the boom in the panel industry continues to pick up, the penetration rate of OLED technology continues to increase, and the trend of panel localization intensifies, the company's performance is expected to usher in new growth opportunities. We expect the company's net profit for 2024-2026 to be 0.143 billion yuan, 0.238 billion yuan, 0.371 billion yuan, EPS 0.69 yuan, 1.14 yuan, and 1.78 yuan respectively, and PE 34X, 21X, and 13X respectively.

Risk warning: the risk of some raw materials being imported, the risk of increased market competition, macro-environmental risks, and the risk of high customer concentration.