Event: the company issued a pre-reduction announcement on its performance for the first half of 2023. It is expected that during the reporting period, the net profit will be 1800 to 23 million yuan, a decrease of 96.5% to 15 million yuan compared with the same period last year. Among them, Q2 will achieve a net profit of 0.10% to 15 million yuan in a single quarter, a decrease of 92.5%, a decrease of 95.0%, and an increase of 25.2%, 87.8%. It is estimated that the non-return net profit will be deducted from 1400 to 19 million yuan during the reporting period, a decrease of 97.0 percent over the same period last year. Among them, Q2 will achieve a deduction of 1400 to 11 million yuan in a single quarter, a decrease of 94.1 percent and 96.7 percent compared with the same period last year, and the month-on-month change will be-15.5 percent.

The electrolyte industry is booming, the price of carbonate series products is declining, and the performance of H1 company is under pressure in 23 years. Affected by the mismatch between supply and demand in the electrolyte industry, weak downstream demand and other factors, the price of carbonate, the main product of H1 company, dropped greatly in 23 years, and the performance decreased significantly compared with the same period last year. According to Baichuan Yingfu data, the average market prices of DMC, PC, EMC, DEC and EC of H1 Company in 23 years were 0.47,0.84,0.96,0.97,0.54 thousand yuan per ton respectively, down 25.5%, 26.8%, 50.0%, 46.2% and 50.6% respectively from the same period last year. The average price of Q2 per quarter was 0.47, 0.85, 0.96, 0.98 and 0.55 million yuan / ton, respectively, with month-on-month changes of-2.3%, + 2.5%, + 0.6%, + 1.4% and-2.7%, respectively.

With the continuous expansion of the company's new production capacity and the gradual pick-up of downstream demand, the company's performance is expected to improve.

Seize the development opportunity of new energy vehicles, raise 3.6 billion yuan to invest in five major lithium battery electrolytes and supporting raw materials projects. The company intends to raise no more than 3.6 billion yuan (including capital), and the net funds raised will be used for the construction of five new production capacity projects, such as lithium battery electrolyte and its supporting raw materials, solute liquid lithium salt, solvent carbonate, etc. Specifically, including Dongying 300,000 tons / year electrolyte project, Wuhan 200,000 tons / year electrolyte project, 220,000 tons / year lithium material production and research and development integration project, 100,000 tons / year liquid lithium salt and 11,000 tons / year additive project, among which Dongying electrolyte project has been put into production in Q1 in 23, the other four will be completed within 23 years, the company is expected to fully benefit from the development opportunities of the new energy automobile industry.

The construction of the new project will be carried out in an orderly manner and continue to move forward to the "electrolyte + material" integrated platform service provider. In terms of electrolyte and supporting products, the company's three major electrolyte production bases, Dongying, Wuhan and Leshan, have a total planned production capacity of 1.1 million tons per year, of which Dongying and Wuhan projects are investment projects in 22 years. In addition, the company has 2000 tons / year lithium hexafluorophosphate and 2000 tons / year power battery additive production capacity. In addition to the 22-year investment project, there are 100,000 tons / year EMC project under construction, which is scheduled to be completed within 23 years; another 10,000 tons / year fluorinated solvent, 10,000 tons / year new conductive agent, 20,000 tons / year positive lithium supplement (phase I) is scheduled to be completed in 24 years; 440,000 tons / year new energy material project (phase II) is scheduled to be completed in 24 years. In terms of silicon-based negative electrode, the company has 1000 tons / year silicon-based negative electrode capacity, Dongying 20,000 tons / year and Meishan 30,000 tons / year silicon-based negative electrode projects will be put into production in December 23 and April 24, respectively. in addition, the company's holding subsidiary Meishan Company also signed an "Investment Cooperation Agreement" with Ruichida in June 23 to set up a joint venture company and build a 10,000 ton / year silicon-based anode material project. In terms of wet electronic chemicals, Dongying's annual production capacity of 50,000 tons of wet electronic chemicals is scheduled to be completed in 24 years.

Earnings forecast, valuation and rating: affected by the continued downward price of carbonate solvents, the company's H1 performance in 23 years is under pressure, with a large year-on-year decline. Considering that the current product price is still at a low level and its profitability has not recovered significantly, we downgrade the company's profit forecast for 2023-2024 and add the profit forecast for 2025. The company's net return profit for 2023-2025 is expected to be 1.08 and 2.06 billion yuan respectively. The company is rapidly expanding the production capacity of electrolytes and other products and actively expanding its range of lithium materials. We are optimistic about the growth space and performance increment that the company will bring to the company after the new capacity is released. At the same time, with the gradual recovery of downstream demand, the company's performance is expected to continue to improve, we maintain the company's "buy" rating.

Risk tips: capacity construction is not as expected, downstream demand is not as expected, product and raw material price fluctuation risk.