Description of the event

The company released its semi-annual report for 2023. In the first half of the year, it achieved revenue of 620 million yuan (-31.3% YoY), attributable net profit of 60 million yuan (-63.8% YoY), and attributable non-net profit of 50 million yuan (-66.2% YoY). Among them, Q2 achieved revenue of 340 million yuan in a single quarter (-27.6% YoY, +24.9% YoY), attributable net profit of 0.4 billion yuan (-45.6% YoY, +214.6% YoY), net non-attributable profit of 0.4 billion yuan (-46.7% YoY, +288.5% YoY), and Q2's quarterly performance increased month-on-month.

Incident comments

The company's revenue and profit declined in the first half of the year. The company's revenue and net profit declined year on year in the first half of the year, and gross margin in the first half of the year was 32.6%, down 4.6 pct year on year. The main reasons include: 1. The main reasons include: 1. Due to the continuous lukewarm impact of downstream terminal consumer electronics demand in the display materials industry, operating income declined, the company's overall production scale effect weakened, and unit direct labor and unit manufacturing costs rose, leading to a year-on-year decline in gross margin; 2. After the gradual consolidation of IPO fund-raising projects, depreciation of new fixed assets led to a year-on-year decline in unit depreciation expenses. The company's expense rate for the first half of the year was 20.6%, an increase of 4.4 pct over the previous year. Among them, the sales, management, finance and R&D expense ratios changed by -0.2, +3.9, -0.9, and +1.7 pct, respectively.

The performance of the display material in the first half of the year is definitely under pressure. In terms of display materials, the company achieved revenue of 512 million yuan in the first half of the year, accounting for 83% of total revenue, a decrease of 300 million yuan from the first half of 2022, and a year-on-year decrease of 37%. The main characteristics of the display materials business in the first half of the year are: 1. Due to strong downstream demand in the first half of 2022, the company's display materials business exceeded expectations. After experiencing a decline in downstream demand in the second half of 2022, demand recovered slowly in the first half of 2023, and the market continued to be lukewarm. Although the display materials business improved season by season, overall revenue still declined significantly compared to the same period last year; 2. In the slow recovery cycle of the display industry, the company's OLED business recovered more than LCD business; 3. Thanks to efficient R&D response speed and high-quality customer service, the company The number of new products in the OLED sector is still growing at a high rate.

The CDMO sector has recovered somewhat. The company's CDMO business achieved revenue of 80 million yuan in the first half of the year, accounting for 12% of total revenue, an increase of 9.39 million yuan over the first half of 2022, an increase of 14% over the previous year. The increase in the company's pharmaceutical business revenue is mainly due to the following reasons: 1. Terminal new process drugs, which are the main products in the pharmaceutical sector, are gradually being released, and customers have increased their purchases of pharmaceutical intermediates supporting this terminal drug. The revenue of this supporting product exceeds 10 million; 2. Some pharmaceutical intermediates are gradually mass-produced and supplied, and sales revenue has increased slightly. As of 2023H1, at the product pipeline level, the company has 168 pharmaceutical pipelines, a net increase of 28 compared to the end of 2022. Among them, there are 120 innovative drug projects for terminal drugs, 34 generic drug projects, and 14 unknown.

The electronic chemicals and other new materials sector continues to gain strength. In the first half of the year, the company's electronic chemicals and other new materials segment achieved sales revenue of 28.27 million yuan, accounting for 5% of total revenue, an increase of 5.14 million yuan over the first half of 2022, an increase of 22% over the previous year.

Currently, the company's main products in the electronic chemicals sector include semiconductor photoresist monomers, TFT flat-layer photoresist, film material intermediates, and PI monomers. Some mass-produced products have maintained a rapid growth trend. Although the sector currently accounts for a relatively low share of overall revenue, the number of customers, the number of new products, and the number of products that form sales are all rapidly increasing year by year. The development potential is huge, which will lay the foundation for the company's rapid growth in future performance.

Maintain a “buy” rating. The company is a leader in organic new materials with diversified business development. Based on superior small molecule organic synthesis technology, it focuses on the three core main tracks of display materials, pharmaceutical CDMO, and electronic chemicals. It is estimated that the company's net profit for 23-25 will be 180 million, 280 million yuan, and 370 million yuan, respectively.

Risk warning

1. Downstream demand falls short of expectations;

2. The progress of the new construction project is lower than expected.