Company Profile

Shenzhen Selen Science & Technology Co.,Ltd. manufactures electronic functional materials. TheCompany produces and sells double-sided adhesive tape series, optical adhesive tape series,protective film series, functional adhesive tape series, and other products. Shenzhen Selen Science &Technology also produces precision mold, fiber products, and other products. （Source: Bloomberg）Event

Shenzhen Selen Science & Technology （the company） announced that Funeng Technology signed aprocurement agreement for aluminum plastic films with the company, confirmed the procurementplan and unit price, and planned to purchase 8 mn square meters of products for the whole year. Thecompany’s annual shipment of aluminum plastic films is estimated to be 30 mn square meters.

Comments

The newly-signed major contract may boost Selen’s performance.

The company is the major supplier of Funeng Technology, supplying 80%-90% products of Funeng’stotal procurement volume. The contract specifies that the annual purchase volume for 2019 is 8 mnsquare meters, which is expected to achieve revenue of CNY 200-220 mn for the company（accounting for 6% of revenue in 2018）， making a great contribution to the company's earnings.

Shenzhen Selen Science & Technology is taking the lead in the sector of aluminum plastic films throughreplacement of overseas suppliers.

Given that the top three suppliers （CR3） have a combined 86% market share, overseas supplierscontrol the global aluminum plastic film market, while domestic suppliers play a minor role in thesector. The company acquired T&T’s plants in Mie-ken, Japan, and started the business of lithiumbatteries with aluminum plastic films, with its capacity ranking first in China. The company alsostrengthens close cooperation with outstanding downstream customers. It has become the exclusiveor major supplier of aluminum plastic films for leading soft package power battery manufacturers,such as Funeng Technology, Tianjin EV ENERGIES, Microvast and CENAT, which highlights an emergingleader in the sector.

Earnings forecast and investment recommendations: Selen Science & Technology transforms into aplatform to develop new materials, and it may embrace decent performance in the future. Weestimate the EPS to be CNY 0.39/0.61/0.84 for year 18/19/20, implying a P/E ratio of 27x/17x/13x（based on the closing price of Jan. 23rd）。 We maintain ‘Outperform’ rating for the company.

Potential risks: poorer-than-expected growth in aluminum plastic film business; slump in productprices due to intensifying market competition