Shihua Technology: There are some differences between the production and sales in the second quarter and the annual plan, and we are working hard to catch up

Recently, Shihua Technology said in an institutional survey that as the epidemic situation gradually improves, the adverse effects gradually weaken, the company's customers in Shanghai, Kunshan and other places have resumed work and production, and the company's related products have gradually increased in volume. At present, the company's production and sales in the second quarter are still somewhat different from the annual plan, but the company is actively solving it and working hard to catch up. 

Shihua Technology said that in order to meet the diverse needs of customers, the company's annual material number has increased. In 2022, the company also achieved a breakthrough from 0 to 1 in multiple material numbers. The sales amount of a single material number may not be very high, but it is of great significance, such as further deepening the end customer's tablet computer and other product lines. In 2022, the company's bio-based materials, which have been technically reserved for many years, have also made relatively positive progress. Bio-based materials are different from conventional petroleum-based materials. They are green and environmentally friendly materials, which are in line with the long-term pursuit of low-carbon and environmental protection at home and abroad. It is the development trend of the materials industry. The company's bio-based materials are currently competing with international friends. At the same time, with the improvement of the company's capabilities, the size of the company's single project is gradually increasing.

It is reported that judging from the current new product prototyping situation, Shihua Technology's electronic composite functional materials will continue to maintain the growth trend of 2021 this year.

Shihua Technology pointed out that Customer A has a large number of product lines and uses a large amount of functional materials, which are mainly supplied by international manufacturers such as 3M and Nitto. The company currently provides only a small part of the materials, and continues to explore and develop new projects and new opportunities every year. According to public information, 3M's total revenue is more than 200 billion yuan, and Nitto's total revenue is more than 40 billion yuan. It can be seen that the demand in the materials market is very large. In 2021, the company's revenue from electronic composite functional materials reached 301 million yuan, a year-on-year increase of 86.03%, and there is still a lot of room for growth in the future.

According to Shihua Technology, the company is optimistic about the application development in the field of new energy and is currently in the early stage of layout and expansion. Existing products are being tested and verified at the client end, mainly playing the role of buffering, shielding, and heat dissipation in electronic control panels and batteries. 

Regarding the epidemic, Shihua Technology stated that the recent epidemic has had a certain impact on the company, but it is generally controllable, with both danger and opportunity. For example, it has an impact on logistics and transportation. The company needs to turn over many times when purchasing some raw materials and delivering goods to customers in some areas, and the freight cost increases. The company reduces the relevant impact by preparing goods in advance and arranging shipments reasonably. In order to ensure the normal production and operation of the company and to meet customer needs as the primary goal, the company has formulated an emergency plan during the epidemic. The Shihua and Shino factories are managed separately to avoid contact between people, and sufficient living supplies are reserved. Some important positions are simulated and closed management. The company has been carrying out production operations in an orderly manner, striving to overcome the time and cost impacts brought by the epidemic, and there is no situation of failure to deliver or order cancellation. In addition, the epidemic in the surrounding areas has also brought some new project opportunities to the company. The company actively cooperates with customers to complete product sampling and certification.

It is understood that of the four high-speed production lines in the Sino plant, two production lines have been in continuous operation, and the company will continue to add production lines in the second quarter to meet the subsequent mass production needs. The main equipment of the OLED optical material production line has been installed, and the clean room decoration is currently coming to an end. After the clean room decoration is completed, precision debugging and product trial runs will be started. Affected by the epidemic, the production line is expected to be postponed to the end of the third quarter of 2022. The company will consider putting into production high-standard electronic composite functional materials and OLED module materials first to improve the capacity utilization rate of the production line in the early stage of production, and then extend to core materials. The company's related products have been verified by brand customers such as Samsung, BOE, and Visionox.

Regarding equity incentives, Shihua Technology believes that the company's supply chain service capabilities for major customers and the market penetration capabilities of new products have gradually strengthened. Judging from the current product verification, the company's electronic composite functional materials will continue to maintain a positive growth trend. New product series such as electronic glue and bio-based materials are currently in the new product introduction stage, and are expected to have certain breakthroughs this year and generate more benefits next year. The company has completed the reserved grant of the second type of restricted stock in April 2022. We are confident that we can ensure the achievement of our goals through the improvement of the company's own capabilities and create more value for employees, shareholders and other stakeholders.