Event: the company released its semi-annual report for 2023. During the reporting period, the company achieved operating income of 1.338 billion yuan, an increase of 31.09% over the same period last year, and a net profit of 250 million yuan, an increase of 71.05% over the same period last year, deducting 232 million yuan of non-net profit, an increase of 110.2% over the same period last year. Of this total, the operating income in the second quarter was 714 million yuan, an increase of 14.35 percent over the same period last year, 14.4 percent higher than the previous quarter, and the net profit returned to the mother was 153 million yuan, up 61.86 percent from the same period last year and 57.73 percent from the previous quarter.

In the first half of the year, lubricating oil additives increased rapidly, and the promotion of compound agents continued to be strengthened. In recent years, the global lubricating oil additive industry is in the stage of reconstruction of international supply chain system and acceleration of domestic import substitution, which brings better development opportunities and broad market space for the company. In the first half of 2023, the company's income from lubricating oil additives reached 1.301 billion yuan, an increase of 35.87 percent over the same period last year, with a gross profit margin of 32.92 percent, an increase of 6.8 pct over the same period last year. The comprehensive gross profit margin of the company in the second quarter was 33.9 percent, an increase of 2.8 pct from the previous quarter. During the reporting period, the company continued to obtain lower dose and more energy-saving bench test reports issued by third-party authoritative testing institutions, demonstrating the rich professional knowledge and strong R & D capability of the company's technical team. for the company to achieve a single agent to compound, medium-and low-end to medium-and high-end strategic transformation to take a solid step, for the company to accelerate access to the mainstream market to lay a solid foundation. During the reporting period, the company increased the promotion of composite agent products, increased development and access to core customers, deployed high-quality resources, actively docked customers, and accelerated the international authoritative certification of composite agent products and internal evaluation and testing of customers. breakthroughs have been made in core customer access, the sales of composite agents have increased rapidly, and the revenue of composite agents accounts for 64.80%, and the transformation and upgrading has been fruitful.

The global market space of lubricating oil additives is large, the industry barrier is high and the competition pattern is good. According to the statistics of Klein and Shanghai Lubricating Oil Industry Association, the demand for lubricating oil additives in China is expected to increase to 1.12 million tons in 2023, and the global demand will increase to 5.34 million tons. The market size is about 18.5 billion US dollars, with an average annual compound growth rate of 5.3% in the past five years. The company has broad space for future development. Lubricating oil additives have high technical barriers and market access barriers, a wide variety of subdivided products, and different compound formulations, which need to pass the API certification of the United States, with high technical indicators and high product quality requirements; large lubricating oil enterprises have strict evaluation of additive suppliers, will carry out long-term strict testing, have very stringent standards and customized requirements, and tend to long-term cooperation once they enter. The competition pattern of the global lubricating oil additive industry is good. According to the data of Liding Industrial Research Institute, the global market share of the four major multinational corporations in Europe and the United States is 85%, and the company continues to seize the global market share. It is estimated that the company's composite agent will have a global market share of 2% and 3% in 2022, which still has a lot of room for improvement.

Continue to expand production and accelerate to seize the global market share, there is plenty of room for growth in the future. The overall technical level of lubricating oil additives of the company is leading in China, and some technologies are leading internationally. The transformation of the compound agent of the company has entered the harvest period. At present, the lubricating oil additive industry is still dominated by foreign capital, and it is particularly important to realize domestic substitution. There is a large room for import substitution. The company's existing lubricating oil additive (single agent) production capacity of 170,000 tons / year, under construction capacity of 550,000 tons / year, of which 90,000 tons / year new capacity will be put into production in the second quarter of 2022. At the same time, the company plans to invest 1 billion yuan to build an annual output of 460000 tons of lubricating oil additive series product project has been launched, will greatly enhance the company's future growth space.

Maintain the "highly recommended" investment rating. It is estimated that the company's return net profit from 2023 to 2025 is 809 million yuan, 1.007 billion yuan and 1.286 billion yuan respectively, and the EPS is 2.81,3.49,4.46 yuan respectively. The current stock price corresponds to 17 times, 14 times and 11 times of PE respectively, maintaining the "highly recommended" investment rating.

Risk tips: rising raw material costs, lower-than-expected downstream demand, and lower-than-expected production of new projects.