Main points of investment

Event: the company disclosed its mid-2023 report that the total operating income in the first half of the year was 822 million yuan, + 4.0% compared with the same period last year, and the net profit returned to its mother was 81.27 million yuan,-26.1% compared with the same period last year. Q2 achieved a total operating income of 444 million yuan in a single quarter, + 5.3% year-on-year, and a net profit of 48 million yuan,-5.3%, basically in line with expectations.

Q2 revenue accelerated year-on-year, mainly due to the demand for clean air market. The company's Q2 single-quarter revenue increased 5.3% year-on-year, speeding up 2.8pct than Q1, and single-quarter revenue increased by 17.8% compared with Q1. In terms of products, the revenue end of the clean air sector performs better than the efficient energy saving sector, which is expected to mainly benefit from the gradual release of demand in the field of semiconductor clean rooms. In the first half of the year, the clean air sector and the efficient energy saving sector achieved income of 535 million yuan / 269 million yuan, respectively, compared with the same period last year. + 10.7% picks up 5.0%, of which the income from Q2 clean air products increased by 28.5% from the previous month, of which the income from purification equipment increased by 37.4%. The revenue of air filter paper increased by 18.4% compared with the previous month. The year-on-year growth rate of income from energy-efficient and energy-efficient products was affected by the decline in re-export trade volume of insulation board, but as the production capacity of glass cotton climbed, the overall income of Q2 high-efficiency and energy-saving products increased by 2.6% compared with Q1, while the income of Q2 micro-glass fiber products increased by 11.9% compared with Q1.

Q2 gross profit margin and net profit margin continued to rise, mainly due to the decline of unit fixed cost and the compression of expense rate. (1) Q2 single-quarter gross profit margin of 25.2%, a year-on-year decline of 1.1pct, is mainly due to the fact that the cost of bulk raw materials has not yet fallen back to the historical level, and the new production line capacity has not been fully released, resulting in an increase in unit fixed cost. In addition, fluctuations in product structure have also had a certain impact. However, Q2 gross profit margin has rebounded 2.4pct compared with Q1, reflecting that capacity climbing promotes the company's unit cost reduction. (2) the expense rate during the Q2 period of the company is 13.4%, which is reduced by 1.9pct compared with the same period last year, in which the sales expense rate / management expense rate / R & D expense rate / financial expense rate is respectively year-on-year + 0.0pct/-0.1pct/-2.6pct/+0.7pct. The decrease in management expense rate is mainly due to the reduction of equity incentive expenses, and the decrease of R & D expense rate is mainly due to the reduction of some R & D expenses entering the development stage. The net interest rate of Q2 is 11.9%, which is 2.5pct higher than that of Q1.

Operating cash flow has improved in a single quarter, and the debt ratio has remained stable. The net cash flow generated by the company's Q2 operating activities was 51.75 million yuan, which was + 43.21 million yuan compared with the same period last year, mainly due to the increase in the cash-to-income ratio in a single quarter and the decline in inventory. The cash paid by Q2 for the purchase and construction of fixed assets, intangible assets and other long-term assets is 16.61 million yuan,-4.9% compared with the same period last year, mainly because part of the production capacity of the previous construction has entered the climbing period. The company's asset-liability ratio was 30.1% at the end of the second quarter, down 2.3pct from the end of the first quarter.

Profit forecast and investment rating: the company is the leader in the subdivision of filter materials in China, ploughing glass fiber filter materials and other core products, forming clean air and efficient energy-saving business sectors. in semiconductors, electronics, medicine, new energy vehicles, aerospace and other fields to gradually achieve domestic substitution. In the medium term, the company operates at the bottom up, clean air materials benefit from the demand for semiconductor clean rooms, building thermal insulation, new energy vehicles and other new products gradually enter the release period. Although the company's filtering equipment revenue has been affected by the sale of Yuanyuan shares, the strategic cooperation with Manhumer Group is expected to accelerate the extension and volume of core materials to areas such as new energy vehicles, as well as the process of medium-and long-term cross-industry and global layout, and the company is expected to start a new round of rapid growth. We temporarily maintain the company's 2023-2025 return net profit of 205 million yuan / 261 million yuan / 336 million yuan respectively, the closing price on August 2 corresponding to the price-to-earnings ratio of 23-18-14, maintaining the "overweight" rating.

Risk hint: the risk that the progress of the transaction is not as expected, the expansion of new products and new areas is not as expected, and the growth of demand for clean rooms is not as expected.