Performance in the first half of the year was under pressure, and profitability was expected to improve

The company released its 2013 annual report. 23H1 achieved operating income of 1.33 billion yuan, -0.64% year on year, realized net profit of 115 million yuan, -21.49% year on year, net profit after deducting non-return net profit of 111 million yuan, -21.31% year on year. Affected by the decline in the prosperity of the chemical industry, the company's performance was under pressure. Looking at a single quarter, 23Q2's revenue/net profit to parent was 732/069 million yuan, respectively, +14.75%/-16.58% year-on-year. We believe that the company's performance is under pressure in the short term. In the medium to long term, the company's engineering business is expected to expand with the support of molten salt heat storage and hydrogen energy. The catalyst business may continue to benefit from the volume of rare earth butadiene rubber production line construction. Furthermore, the company continues to expand production and technical reform in the traditional fine chemical field, and cooperate with Shanghai Huayi to lay out MMA. Subsequent business structure optimization is expected to drive marginal improvements in profitability.

The catalyst business is rapidly expanding, and new business development continues to advance

By business, the 23H1 project general contracting/engineering design/alcohol ester/residual liquid processing/catalyst business achieved revenue of 2.6/0.4/6.6/2.2/150 million yuan respectively, compared to -18.3%/+8.83%/-4.91%/-0.26%/+134.4%, respectively. The gross margin was 30.27%/37.97%/12.87%/21.26%/30.71%, respectively, and +14.8pct/+0.16pct/-2.46pct/-10.35pct/+3.05 pct, respectively. As the new catalyst production capacity gradually climbed, both revenue and gross margin improved markedly. In terms of orders, 23H1 signed 180 million yuan in new orders, -29.2% year-on-year. Of these, consulting, design/general engineering contracts were signed at 0.4/140 million yuan, respectively, +5.6%/-34.9% over the previous year. 23H1 has established two new subsidiaries as a platform company for the development and operation of new materials such as cellulose butyrate acetate and its derivatives, focusing on improving product refinement and added value. Furthermore, the company's 30,000 tons/year propionic acid (butyric acid, valeric acid) project was successfully completed, driving further improvement of the “aldocholate” industry chain. It is expected to bring about improvements at the revenue level in the future.

Gross margin increased slightly, and there is still room for improvement in cash flow/expense control 23H1. The company's comprehensive gross margin was 20.6%, year on year +1.25 pct, and period cost rate was 9.23%, year on year +1.4 pct. Among them, sales/management/R&D/financial expense ratios were 0.72%/4.59%/4.39%/-0.47%, respectively, and +0.18 pct/-0.47%, respectively, +0.18 pct/-0.21pct/+1.33pct/+0.09pct, year on year. Costs could not be diluted due to a slowdown in revenue growth. At the same time, the company commissioned R&D and cooperation R&D project expenses increased, and R&D investment was +43% year-on-year, driving up the R&D cost rate. 23H1's asset and credit impairment losses totaled 100 million yuan, an increase of 26 million yuan over the previous year. Under the combined influence, the net interest rate was -1.7 pct to 9.19% year on year. 23H1's net CFO amount was -66 million yuan, an increase of 272 million yuan over the previous year, a year-on-year increase of 272 million yuan, a year-on-year increase of -20.87 pct to 87.11%, and a payout ratio of -0.27 pct to 98.81% year-on-year.

Lay out new energy materials to support medium- to long-term development and maintain “buy” ratings. We believe that the company is expected to rely on technology and first-mover advantages to win more orders in the field of energy storage. At the same time, demand for new additions and modifications to the 14th five-year rare earth butadiene rubber production line is expected to increase, and is expected to usher in a period of opportunity for industry expansion. Considering that the continued slump in the chemical industry in the first half of the year dragged down the company's performance, we lowered the company's 23-25 net profit forecast to 3.4/42/5.2 billion yuan (previous value was 4.3/54/700 million yuan) to maintain the “buy” rating.

Risk warning: Prices of raw materials have fluctuated greatly, hydrogen energy market sentiment has fallen short of expectations, molten salt heat storage projects have fallen short of expectations, and the prosperity of the petrochemical industry has declined more than expected.