Leading company in insulation materials, deepening expansion of film & resin. The company started with insulating materials and continues to expand the breadth and depth of its product matrix. It has now formed a product matrix of optical film+electronic materials+insulating materials (new energy/electrics) +environmentally friendly flame retardant materials. The downstream is compatible with emerging growth tracks such as AI/integrated circuits/new displays/new energy/photovoltaic/automotive decoration.

Optical film: Domestic alternatives are on the rise, optimizing the structure and improving profits. The revenue and sales volume of the company's optical film products grew rapidly in 2019-2023, with CAGR of 30.5% and 37.4% respectively during the period. As of 24H1, the company has an optical film production capacity of 0.09 million tons under construction and trial production. 1) The film industry as a whole has structural overcapacity, and high-end products still need to be replaced by domestic products.

The domestic polyester film market as a whole has a structural contradiction of excess ordinary products and insufficient functional mid-range and high-end products. Most imports are high-end optical films, and the average price is much higher than that of export products, which are mainly mid-range and low-end packaging films. 2) The demand for high-end optical films is nearly one million tons, exceeding the 10 billion market. High-end products used in microelectronics/new display fields such as MLCC/polarizer/OCA are more difficult to produce and have higher added value. Global/domestic demand is expected to reach 0.9/0.73 million tons in 2025, respectively; in addition, along with the upgrading of automobile consumption, “automobile 4 film” may contribute to an increase in demand. 3) Strong cooperation binds to the optical film industry chain, releasing production capacity, optimizing superposition structures, and strong performance growth. The company has joined forces with downstream core enterprises such as Shanjin Optoelectronics and Wanrun Optoelectronics to carry out in-depth cooperation in the field of polarizers and MLCC with higher added value; in the future, as the company releases new production capacity and the share of high-end products, the optical film scale and profitability are expected to continue to increase. The optical film materials business revenue is expected to be 1.17/1.66/2 billion yuan in 2024-2026, with year-on-year growth rates of 22.1%/41.2%/20.8%, respectively.

Electronic materials: Demand for high-speed resins is strong, and the proposed 0.02 million-ton project is growing significantly. The production capacity of electronic resin products increased from 0.005 million tons to 0.136 million tons in 2019-2023, and revenue and sales increased rapidly. During this period, CAGR was 67.5% and 90.3%, respectively. The 24Q1-Q3 is still in the rapid release stage, achieving sales volume of 0.043 million tons, an increase of 38.7% over the previous year.

1) Advanced applications account for a high proportion, and PCB expansion has sufficient kinetic energy. PCB is the “mother of electronic products,” and the industry may experience restorative growth. The server, data center, and automotive electronics fields will contribute to the industry's main growth momentum. 2) High-frequency high-speed CCL is the core material for high-performance PCB products for servers. Iterative server upgrades have improved PCB performance requirements, spawned demand for high-frequency high-speed CCL. Electronic resin formulation systems have developed along with it, and demand for high-end resins such as PPO, BMI, and CH has increased. 3) High-end resins are progressing smoothly into CCL leaders and have been supplied to mainstream industrial chain systems such as Nvidia, Huawei, Apple, and Intel. The company actively lays out high-end resins and accelerates the import substitution process. It has become a core resin material supplier in the fields of 5G/6G communications, high-end computing power, servers, etc., and leading global CCL manufacturers Shengyi Technology and Taiguang Electronics are important customers of the company. 4) The proposed construction of a new 0.02 million ton project may contribute to significant performance flexibility.

In order to further maintain the production capacity scale and leading edge in the field of high-speed resin materials, the company plans to invest 0.7 billion yuan to build a new 0.02 million ton high-speed electronic materials project involving the production of PPO, BMI, CH, etc. According to the company's estimates, it may contribute an average annual revenue of about 2 billion yuan and total profit of about 0.6 billion yuan after full production. Along with the rapid development of emerging downstream industries such as AI, and the gradual release of production capacity, the electronic resin business may continue to grow rapidly. The company's electronic materials business revenue for 2024-2026 is expected to be 1.04/1.59/2.34 billion yuan, with year-on-year growth rates of 26.1%/53.1%/47.1%, respectively.

Insulation materials: Focus on new energy, strong demand supports long-term growth. 1) The company is deeply involved in insulation materials, and the strategy clearly focuses on new energy. In 2022, the company will separate new energy materials from the insulation materials sector, clearly focusing on the development of new energy materials. Related products are widely used in the new energy industry chain for power generation, transmission and use of electricity. 2) Dual carbon targets support demand, release production capacity and contribute steadily to performance. Transmission side: Benefiting from clear policy goals, UHV construction may reach a peak, bringing continued demand for electrical polypropylene films; on the power generation side, photovoltaic backplane substrates are an important auxiliary material for photovoltaic modules, and demand is strong along with the strength of the photovoltaic industry; on the electric side, PP film is suitable for new energy capacitors, and the penetration rate of new energy vehicles is gradually increasing or will drive continuous growth in demand. In addition, the company's composite copper foil fluid collection field projects are also progressing simultaneously. As of 24H1, the production capacity of new energy materials under construction was 0.028 million tons, and the combined production capacity release contributed steadily to performance.

Profit forecast: As a new platform-based material company, the company continues to make efforts in expanding production capacity, downstream customer certification, and product sales structure optimization. The competitive advantage and growth potential are clear. We expect the company's net profit to be 0.31/0.4/0.6 billion yuan in 2024-2026, respectively, with year-on-year growth rates of -4.7%/28.5%/49.8%, respectively. Corresponding to the current stock price PE is 23.3x/18.1x/12.1x, which is significantly lower than the average of comparable companies. Covered for the first time, giving” “Buy” rating.

Risk warning: The increase in raw material costs exceeds expectations, demand falls short of expectations, the new supply of the industry exceeds expectations, the competitive pattern deteriorates, the risk of deviations in market space estimates, and there is a risk that the data used in the report is delayed or not updated in a timely manner.