The company is a leading company in the field of domestic filter material segmentation, with the world's leading filter material research and development, production and sales capacity, and its two core business sectors, "clean air" and "high efficiency and energy saving", have a large long-term demand space and are expected to continue to grow steadily in the future. We maintain the company's annual net profit forecast of $1.78 million for 2023-24-25, corresponding to the EPS forecast of $0.17 and $0.21, respectively. With reference to the company's historical valuation, we value the company at 29 times PE (corresponding to the historical 25 quartile PE multiple) in 2023, and maintain the "buy" rating corresponding to the target price of $5.

2023H1 revenue increased 3.98 per cent year-on-year, while home net profit fell 26.09 per cent year-on-year. The company's 2023H1 realized revenue of 822 million yuan, year-on-year + 3.98%, net profit of 81 million yuan, year-on-year-26.09%, and non-return net profit of 71 million yuan,-25.57%. Among them, the company Q2 achieved revenue of 444 million yuan in a single quarter, + 5.27% year-on-year and + 17.78% month-on-month; realized net profit of 48 million yuan,-5.27% and + 44.22%; and deducted non-return net profit of 41 million yuan,-4.90% year-on-year and + 38.63%.

The company's revenue has maintained steady growth. Due to the gradual rebound in market demand for 2023Q2, the income from clean air products increased by 28.51% compared with 2023Q1. At the same time, with the increase in income and the corresponding increase in output, the fixed cost-sharing per unit cost decreased compared with 2023Q1, the net profit of homing home increased significantly, and the performance improved significantly compared with the previous month.

The four-fee rate of 2023H1 decreased by 3.06 pcts compared with the same period last year, and the net cash flow generated by operating activities was 55 million yuan. From the expense side, the company's 2023H1 sales / management / R & D / financial expense rates are 2.46%, 6.21%, 4.42%, 0.32%, respectively, compared with the same period last year.

The total rate of the four fees was 13.41%, down 3.06 pcts from 16.47% in the same period last year. The decrease in sales expenses is mainly due to the decrease in staff and workers' salary and market development expenses; the decrease in management expenses is mainly due to the reduction in equity incentive expenses; the decrease in R & D expenses is mainly due to the decrease in the amount of R & D expenses due to part of the R & D expenses entering the development stage; the increase in financial expenses is mainly due to an increase in the amount of interest expenses on convertible bonds compared with the same period last year. The Q2 single-quarter sales / management / R & D / financial expense rate is 2.89%, 6.23%, 4.54%, 0.23%, 0.94, 0.05, 0.25 and 1.18 pcts respectively. From the perspective of cash flow, the net cash flow generated by the company's 2023H1 operating activities was 55 million yuan,-33.92% compared with the same period last year, mainly due to the decrease in the recovery of maturing bills and goods; the net cash flow generated by 2023Q1 operating activities was 3 million yuan in a single quarter, and the net cash flow generated by 2023Q2 operating activities in a single quarter was 52 million yuan.

It is proposed to transfer 70% of the equity of Youyuan in Suzhou and join forces to expand the global layout. On July 26, 2023, the company announced that it planned to transfer 70 per cent of its wholly-owned subsidiary Youyuan Environment to Manhumer Singapore Holdings, with an estimated price of RMB 320 million and a purchase option for Manhumer's remaining 30 per cent stake. Manhumer Group is the world's leading provider of filtration technology solutions, ploughing the Chinese market for more than 20 years. Thanks to years of innovation and development in the field of "clean air", the company has the world's leading glass microfiber research and development, production and sales capabilities, as well as glass fiber filter materials, PTFE filter materials, high-efficiency and low-resistance melt blown filter materials and other core filter materials. Through this transaction, the company is expected to reach a wide range of strategic cooperation with Manhumer. Promote its material advantages to more global users, at the same time expand the company's layout in the field of new energy vehicles, accelerate the company's diversified development and global layout, and broaden the medium-and long-term growth space.

We will actively lay out new energy vehicles and the aerospace sector and open up a new growth curve. In the field of new energy vehicles, Chongqing Langzhirui New material Technology Co., Ltd., a subsidiary of the company, provides a variety of filters for air safety and air quality in the automobile cockpit, effectively filtering fine particles, gas pollutants, bacteria, viruses, dust, aerosols, plant pollen, mold spores, dust mite excretion, etc., and the filtering effect on ≥ 0.3 μ m particles can reach 99.97% or more. The high-efficiency PTFE membrane products produced by the company's Baoman New Materials have been adopted by international well-known enterprises and applied to automobile cockpit air conditioning filter elements. In the field of aerospace, the company's efficient and energy-saving product glass fiber cotton for sound insulation blanket has excellent properties such as light weight, flame retardant, waterproof, sound insulation, heat insulation and so on. it can be used in aircraft cabin, cabin, subway and other application fields with high requirements for sound insulation and thermal insulation. The company has built an acoustic laboratory in accordance with the standards of the American Association for material testing, completed the AS9100 certification of the aerospace quality management system, obtained the Chinese test qualification certificate for soundproof and thermal insulation blankets, and has begun to supply soundproof and thermal insulation blankets in batches to Commercial aircraft Corporation of China. At the same time, the high silica fiber developed and produced by the company has been the first to be used for a long time by international well-known aerospace companies, and has reached a deep commercial cooperation, which is of great significance for the company to develop high-end applications in aerospace.

Risk factors: macroeconomic pressure; the company's new business expansion is not as expected; downstream demand is shrinking; competition is increasing.

Profit forecast, valuation and rating: the company is a leading company in the field of domestic filter material segmentation, with the world's leading filter material research and development, production and sales capability. its "clean air" and "efficient energy saving" two core business sectors have large long-term demand space, and are expected to continue to grow steadily in the future. We maintain the company's annual net profit forecast of $1.78 million for 2023-24-25, corresponding to the EPS forecast of $0.17 and $0.21, respectively. With reference to the company's historical valuation, we value the company at 29 times PE in 2023 (corresponding to the historical 25 quartile PE multiple), maintain the target price of $5, and maintain the "buy" rating.