On August 19, the company released its semi-annual report for 2023:2023H1 achieved operating income of 21.57 billion yuan, 4.9% year-on-year, realized net profit of 210 million yuan, -24.0% year-on-year, and achieved net profit of non-attributable net profit of 0.1 billion yuan, or -94.1% year-on-year. 2023Q2 achieved operating income of 11.99 billion yuan, +7.8%/+25.2% year on year, net profit of 120 million yuan, year over year and month on month, -28.9%/+25.2%, net profit of non-return net profit of 0.1 billion yuan, and -92.0%/+237.4% year on year.

Copper-based materials sector: Profitability declined year-on-year due to increased competition in the industry and weak downstream consumer demand, but improved month-on-month and the overall scale maintained steady growth. The overall gross profit margin of 2023H1 copper-based materials was 2.9%, a significant improvement over the previous year of -1.6 pct compared to 1.4% of 22H2, achieving sales volume of 443,000 tons, +7.7% year on year, revenue of 21.01 billion yuan, +4.4% year on year. Among them, copper strip products sold 158,000 tons, +4.1% year on year. Copper conductors grew faster with the launch of fund-raising projects, achieving sales volume of 191,000 tons, +17.3% year on year.

Military carbon materials sector (carbon fiber composites and high-end equipment):

Tianniao Hi-Tech: Accelerate the layout of the civilian goods sector and expand downstream of the carbon fiber composites industry chain.

23H1 achieved revenue of 320 million yuan, +6.5% year-on-year, and net profit of 61.22 million yuan, or -14.7% year-on-year. The first phase of the Wuhu Tianyao “High Performance Carbon Fiber Composite R&D and Production Project” has been put into operation, and 23H1 has achieved revenue of 10.23 million yuan. Production capacity and market are in the midst of a run-in, and the benefits of the project need to be further exploited to enhance performance.

Dingli Technology: Expanding the business in the new materials sector and developing businesses such as high-purity graphite/high-purity carbon materials and metal-based 3D printing materials. With the batch delivery of 3D printed structural parts, the tantalum carbide coating project was completed and put into operation, and the company's performance increased rapidly. 23H1 achieved revenue of 240 million yuan, +45.0% YoY, and net profit of 4186 million yuan, or +114.9% YoY.

Maintain a “Highly Recommended” investment rating. Considering the factors that are putting pressure on processing costs due to increased competition in the copper processing industry, we lowered our profit forecast. We expect net profit to be 5.0/7.2/1.03 billion yuan in 2023-25, corresponding to a price-earnings ratio of 18/13/9 times. We are optimistic about the future development prospects of Jiangsu Tianniao's carbon fiber composites and Dingli Technology's new materials business, and maintain a “highly recommended” investment rating.

Risk warning: raw material prices fluctuate greatly, the progress of production projects falls short of expectations, downstream demand falls short of expectations, etc.