The company achieved net profit of 142 million yuan to the mother in H1 in 2021, an increase of 113.6% over the previous year; of this, Q2 achieved net profit of 80 million yuan to the mother, an increase of 34.8%/30.8% over the previous year/month. Major products in all sectors have improved year over year. Among them, the target materials business is expected to benefit from the boom in the semiconductor industry and become the main driving force for the company's performance. According to the average valuation of comparable companies, the company was given 40xPE in 2022, and the target price for the next year was raised to 21.6 yuan (the original target price was 17.1 yuan) to maintain the company's “buy” rating.

2021H1 revenue/net profit was +31.9%/65.0%, respectively. 2021H1 achieved revenue of 7.628 billion yuan, an increase of 49.88% over the previous year; achieved net profit of 142 million yuan, an increase of 113.6% over the previous year; and achieved net profit of 107 million yuan after deduction of the mother, an increase of 173.0% over the previous year. Among them, 2021Q2 achieved net profit of 80 million yuan to the mother, an increase of 34.8%/30.8% over the previous year/month. The reason for the increase in performance is that major products in all sectors have improved compared to the same period. Among them, the target materials business in the electrical sector has increased significantly.

The target material business became the main driving force for the company's performance, accelerating the expansion of project production. As of 202H1, the high-purity metal industrialization construction project constructed earlier has been completed. At the same time, by improving efficiency, the company has greatly increased production and its performance has increased markedly. Many of the company's 12-inch target products passed verification in 2020 and entered various advanced semiconductor factories in 2021H1 to achieve stable batch supply. In the first half of the year, the company re-sorted out more than 30 key large-scale targets and actively carried out research and development to steadily achieve the transformation to large-scale products; at the same time, new production expansion projects were planned to further increase production capacity. Benefiting from the opportunities for the development of domestic targets brought about by the future transfer of materials from the semiconductor industry chain to the country, the growth rate of the target material industry is expected to exceed 10%, and the company's performance is expected to continue to grow dramatically.

The results of corporate mergers and acquisitions integration, transformation of scientific research results, and market development have been shown, and performance has entered a harvest period. During the reporting period, 1) the magnetic sector: sales of rare earth magnetic materials products increased sharply year on year, and the production of heavy metals and targets such as terbium and pyrudium metal increased 1.5 times year on year; in addition, the company adjusted the industrial chain to increase the proportion of high-value-added products; 2) Optical sector: the company continued to promote the expansion of the industrial chain, and the production scale increased dramatically. At the same time, the revenue and gross profit of products in the infrared sector increased by nearly 30% year on year; 3) Medical sector: the revenue of self-produced orthodontic products increased 72% year on year; at the same time, the company actively deployed the digital dental equipment field. Central website platform Continuously upgraded and updated, the number of institutional users increased by about 30% over the same period last year.

Risk factors: The boom in the semiconductor industry fell short of expectations, and the release of the company's new target production capacity fell short of expectations.

Investment advice: The company's performance improved significantly in the first half of 2021, and the electricity sector business increased significantly. At present, the company's four “electromagnetic photomedicine” business segments have all entered a performance release period. In particular, the target materials business is expected to benefit from the boom in the semiconductor industry and grow rapidly. We maintain the company's 2021-2023 net profit forecast of 289/468/616 million yuan, corresponding to the 2021-2023 EPS forecast of 0.34/0.55/0.73 yuan. According to the average valuation of comparable companies in the industry, the company was given 40xPE in 2022, and the target price for the next year was raised to 21.6 yuan (the original target price was 17.1 yuan) to maintain the company's “buy” rating.