Event: the company issues a half-year performance forecast for 2023. In the first half of 2023, the company expects to achieve a net profit of 110 million yuan, a decrease of 95.3% compared with the same period last year, and an estimated net profit of 50 million yuan, a decrease of 97.9% over the same period last year. Among them, 2023Q2 is expected to achieve a net profit of 3.8 million yuan in a single quarter, down 99.7% from the same period last year and 96.4% from the previous quarter.

The prices of glyphosate and silicone fell, and 23H1's performance was under pressure. In the first half of 2023, due to weak macroeconomic demand at home and abroad, the company's main products glyphosate and silicone downstream demand was lower than expected. For glyphosate, 23H1 inventory at home and abroad is at a high level, and the removal of inventory is relatively slow, which has a negative impact on the production, sales and the release of new capacity of relevant manufacturers; for silicone, the increase in supply-side capacity intensifies the competition in the industry, and the superimposed demand is lower than expected, resulting in a sustained decline in domestic silicone prices. According to iFinD, the average price of glyphosate and silicone DMC in 23H1 fell 46.6 per cent and 45.0 per cent respectively compared with the same period last year. Among them, the average prices of glyphosate and silicone DMC in 23Q2 fell 54.3% and 40.9% respectively from the same period last year, and 34.2% and 12.8% respectively from the previous month. The decline in the price of the main product weakens the company's profitability, while weak downstream demand further affects product sales, which ultimately puts pressure on the company's 23H1 performance. However, it is worth noting that the domestic price of glyphosate has rebounded since July, 23 years, which is expected to lead to the gradual recovery of the company's profitability.

It is planned to raise an additional 1.8 billion yuan to distribute high value-added silicon-based materials. The company intends to raise no more than 1.8 billion yuan from specific investors, including Chuanhua Chemical, a wholly-owned subsidiary of Chuanhua Group, the controlling shareholder, for the upgrading project of Zhejiang Kaihua synthetic Materials Co., Ltd. (the investment is 1.66 billion yuan. Use the raised funds of 1.2 billion yuan) and 35600 tons / year high purity polysiloxane projects (310 million yuan of investment, 300 million yuan of raised funds) This increase was approved by the Securities Regulatory Commission at the end of June 23. The completion of the fund-raising project will improve the supply capacity of the company's high value-added silicon-based materials such as functional silane, special silicone and high-purity polysiloxane, promote the company's silicon-based materials industry chain to deepen downstream, and enhance the overall profitability of the silicon-based materials business.

Earnings forecast, valuation and rating: due to the sharp decline in the prices of glyphosate and silicone products, 23H1's profitability has weakened and its performance is under pressure. Considering that the current silicone price is still at the bottom and profitability has not recovered significantly, we have lowered the company's 23-24 profit forecast and added 25-year profit forecast. It is estimated that the company's return net profit in 23-25 is 6.81 (down 80.0%) / 9.97 (down 73.2%) / 1.269 billion yuan respectively. The company ranks in the forefront of production capacity in the domestic glyphosate and silicone industry, and with the gradual improvement of downstream demand, the profitability of the company's main products is expected to be repaired. In addition, as the company decides to increase the production of investment projects, the company will increase the supply capacity of high value-added silicon-based materials, thus providing more increments for the company's overall performance and maintaining the company's "buy" rating.

Risk tips: product and raw material price fluctuations, lower-than-expected demand, environmental protection and production safety risks.