Event: the company issued a half-year performance announcement for 2022, with revenue of 351 million in the first half of the year, an increase of 21.32% over the same period last year, and a net profit of 92.226 million yuan, an increase of 16.54% over the same period last year. Of this total, the net profit in the second quarter was 49.538 million yuan, an increase of 16.7% over the same period last year and 16.0% higher than the previous quarter. Although the company has been affected by the sharp rise in natural gas prices and the epidemic in Shanghai since the second quarter, the company has improved its gross profit margin to a certain extent in the second quarter by optimizing its internal process, with a single-quarter profit of the second highest in history. We believe that with the relief of the epidemic, the company's product structure will continue to be optimized in the third quarter, and the gross profit margin is expected to further improve.

Gross profit margin improved in the second quarter from the previous quarter, and is expected to continue to rise in the third quarter. Since the beginning of 2022, due to the impact of geopolitics and global economic recovery, the prices of products such as crude oil and natural gas have risen rapidly. As natural gas is an important raw material for the company, the company's costs rose sharply in the first half of the year. In addition, since March, the company has received the impact of the epidemic in the Yangtze River Delta region. However, through vigorously expanding overseas markets, the company continues to be recognized by well-known overseas customers, and its market share is gradually increasing. At the same time, by adjusting the product structure, the company keeps the sales volume of high-end products continuing to grow, and achieves positive profit growth compared with the previous month. While the price of natural gas is still at an all-time high, the company's quarterly profit level is the second in history, fully demonstrating the company's excellent management level.

We believe that after the company's production and sales return to normal in the third quarter, with the further optimization of the product structure, the profit margin is expected to continue to improve compared with the previous quarter.

High-end production capacity continues to expand and has strong long-term growth. We expect 1500 tons of liquid fillers to be put into production in the second half of 2022, and the proportion of products to revenue will gradually increase in the year after next year. At the same time, the company invests 300 million yuan to build a powder production line with an annual output of 15000 tons for high-end chip packaging, which will be put into production by the end of this year to further meet the needs of customers in the fields of new generation chip packaging and high-frequency and high-speed circuit substrates. In the future, the company will unswervingly cultivate deeply around the subdivided track of functional ceramic powder fillers, and vertically continue to develop in the direction of ultra-fine, high-purity and functionalized silicon-based and aluminum-based functional powder fillers. Horizontal focus on new fillers and the realization of new technology, new process development, the development of more functional fillers to meet the ever-changing needs of the market. At the same time, the company has reserved a number of production lines and stored a number of new products under research, such as advanced nitride powder materials, electronic grade hollow glass beads, high-purity ultra-fine spherical alumina for new energy vehicles, spherical silicon powder for straight-through honeycomb ceramic carriers, etc., with huge room for capacity growth in the future.

Continue to increase investment in research and development to consolidate the leading position of functional powder materials. The company continues to increase R & D investment, seize the opportunity of transformation of chip packaging, and continue to develop spherical fillers to large particle precision cutting, tighter filling, high purity, high thermal conductivity, special electrical properties and so on. focus on the standard to 5G requirements of high-frequency high-speed copper clad laminate applications and advanced packaging applications of key heterogeneous integrated packaging requirements of spherical ceramic powder materials. At the same time, it is suitable for advanced packaging and new generation of high frequency and high speed copper clad laminates with LowDf (low dielectric loss) spherical silicon powder and high purity spherical alumina powder continuously introduced into the semiconductor packaging market, and customer orders are growing rapidly. Spherical products used in advanced packaging, Low α micron spherical silicon powder used in memory chip packaging, Low α submicron spherical silicon powder, LowDf (low dielectric loss) spherical silicon powder, especially some spherical silicon powder meet the performance requirements of UltraLowDf (ultra low dielectric loss) copper clad laminate above M6 grade, and achieve small batch sales. In addition, with the continuous expansion of thermal interface materials and emerging fields, the company's ball aluminum and ball silicon products can be used in the fields of honeycomb ceramic carriers, UHV insulation products, adhesives, 3D printing, dental materials and special inks. The added value of the products continues to improve, and the market space continues to expand. At present, the company has established a close supply relationship with many well-known customers at home and abroad, work with customers to develop new products, complete the deep binding, and the market share will be further increased in the future.

Maintain the "highly recommended" investment rating. We estimate that the company's net profit from 2022 to 2024 will be 218 million yuan, 314 million yuan and 429 million yuan, respectively, and the EPS will be 2.54,3.65 and 4.99 yuan respectively, and the current share price will be 33.0,23.0,16.8 times of PE respectively, maintaining a "highly recommended" rating.

Risk hint: the epidemic affects the progress of shipments and the global natural gas price increases are higher than expected.