Cybrid Technologies is a diversified material platform company, leading in the business of photovoltaic (PV) backplane and polyolefin elastomer (POE) adhesive film. Its POE adhesive film production capacity is expanding rapidly with sufficient POE supplies, which is likely to maintain the leading market share. The Company actively expands the market of computer, communication, and consumer electronics (3C) products and lithium battery film materials with high gross profit margin (GPM). Cybrid also boasts strong R&D capabilities with the R&D based on a strategic platform as the core, and it also extends the business presence and constantly leads the industry transformation. We forecast its 2022E-24E attributable net profit (ANP) to be Rmb235mn/536mn/754mn. We initiate coverage with a “BUY” rating and a target price of Rmb37 (on 30x 2023E PE).

A diversified material platform company with visible GPM rebound in 2023.

Cybrid is mainly engaged in PV backplane, packaging adhesive film and lithium battery film materials. At present, the Company’s production capacity of backplane/POE adhesive film is 180mn/360mn sqm, respectively. With the efficiency enhancement of the current production capacity, the Company’s PV material is likely to keep its leading position by market share. We forecast its 2022E/23E ANP to be Rmb235mn/536mn (+37.9%/+128.5% YoY), with GPM of 13.8%/15.9%. The Company will likely see profitability recovery in 2023.

PV materials: Capacity expansion and new production application enable the optimization and improvement of the product matrix.

According to our forecast, the global new installed capacity of PV is likely to reach 350GW/440GW in 2023/24, maintaining high growth, and the demand for PV backplane and packaging adhesive film will increase. The sales structure of Cybrid’s backplane products was optimized with GPM improvement. The Company launched a new product of ultraviolet (UV) light converting film for heterojunction technology (HJT) batteries, which was recognized by the leading companies Maxwell and Huasun Energy, and the Company signed a 10GW framework cooperation agreement with the latter for 2023-24. We believe that the Company, backed by its first-mover advantages and technological edges, will gain more acceptance by other HJT battery producers and see its new products of UV light converting film achieve premium and high GPM, thus improving its profitability.

Lithium battery film materials: A likely next growth curve with high- speed growth.

Cybrid’s production and sales of lithium battery business has increased rapidly. In 2021, the shipment of the Company’s semi-conductor, electrical and transportation (SET) materials increased by 591% YoY. It also witnessed the ramp-up of its high-end functional materials in the electronic and electrical fields, and the scale effect is likely to be further enhanced. According to the Company’s announcement, by the end of 2021, the single unit value of the its products released and in pipeline was about Rmb2,000. Based on this, the market scale of the Company’s lithium film materials likely reached Rmb100bn in 2022, with a 30% CAGR in 2022-25 per our estimates, maintaining a rapid growth. Cybrid competes with 3M, Tesa and other foreign giants in the area of lithium battery field. We are optimistic about the Company’s products further replacement with foreign ones in the supply chain of BYD and other leading energy vehicle (EV) companies.

Core advantages: Platform-based R&D and technological innovation.

Cybrid developed its original KPf products which became the product with the number one market share very quickly among all the backplane products.

The Company also introduced UV light converting films for HJT batteries to build presence in advance. It follows the trend of technology iteration and leads the industry, further achieving efficiency improvement of PV products.

Backed by its own R&D advantages, the Company expanded lithium battery product business, and cooperated with BYD to develop products which has achieved domestic replacement. We believe that the Company’s R&D strength and innovation capability are in the leading position in the industry.

Benchmarked against the innovative development mode of overseas companies, we believe that the Company will realize technology migration and R&D efficiency improvement through its technology platform, and we are bullish on its future development potential.

Potential risks: Less-than-expected PV installed capacity; lower-than-expected release of the new capacity; lower-than-expected penetration rate of N-type batteries; POE shortage; UV light converting film technology being replaced; downward penetration of PV backplanes.

Investment strategy: Cybrid Technologies is a diversified material platform company, leading in the business of PV backplane and POE adhesive film. Its POE adhesive films production capacity is around 360mn sqm currently with sufficient POE supplies, which is likely to maintain leading market share. The Company actively expands the market of 3C products and lithium film materials with high GPM. Cybrid also boasts strong R&D capabilities, with the R&D based on a strategic platform as the core, extending the business presence, and constantly leading the industry transformation. We forecast its 2022E-24E ANP to be Rmb235mn/536mn/754mn Taking the valuation of comparable companies as references, and combined the PE and DCF valuation methods, we initiate coverage with a “BUY” rating and a target price of Rmb37 (on 30x 2023E PE).