1H23 performance is basically in line with our expectations.

The company announced 1H23 results: revenue 1.815 billion yuan, year-on-year-9.5%, return to the mother net profit of 125 million yuan,-7.9% year-on-year. Of this total, 2Q23's revenue was 1.035 billion yuan,-7.9% compared with the same period last year, and its net profit was 77 million yuan,-4.1% compared with the same period last year. The company's 1H23 performance is basically in line with our expectations.

1) the demand of the main business has been repaired, but it is still slightly under pressure compared with the same period last year. The revenue of 1H23's admixture new materials and construction integrated technical services business is 1.094 billion yuan and 192 million yuan respectively, compared with the same period last year. Due to the slow recovery of downstream demand and fierce competition in the testing business, the revenue of the two major industries has declined to a certain extent.

2) the gross profit margin rebounded moderately, while the gross profit margin of the testing business decreased. 1H23's gross profit margin is about 20.1%, year-on-year + 0.4ppt, the overall moderate recovery, of which the construction of integrated technical services business gross profit margin of about 34.4%, year-on-year-4.3ppt. 2Q23's gross profit margin is about 20.6%, year-on-year / month-on-month + 0.7/+1ppt, which continues to be on the path of mild repair.

3) the expense rate increases slightly, which suppresses the net profit margin to a certain extent. The sales / management expense rates of 1H23 were 4.8%, 8.3%, respectively, compared with the same period last year + 0.7/+0.8ppt, and the overall expense rate increased.

4) the operating net cash flow is under pressure compared with the same period last year. The operating net cash flow of 1H23 is about 62.01 million yuan,-57% compared with the same period last year, of which 2Q23 operating net cash flow is 131 million yuan,-11% compared with the same period last year. We believe that it is mainly due to relatively weak demand and increased competition in the industry, resulting in a reduction in sales rebates.

Trend of development

The company has a leading market share and continues to expand the market, the main business still has a certain degree of growth. According to the company's 1H23 interim performance report, by the end of 1H23, the company has been distributed in 16 provinces and municipalities directly under the Central Government, with a total domestic synthetic capacity of 1.389 million tons, and has taken the lead in Fujian, Guizhou, Chongqing, Hainan, Shaanxi, Shanghai and other regions and cities, we believe that the company is expected to continue to develop market share, and there is still room for the main admixture industry to further increase its market share.

Open up a new pattern of overseas development, revenue and profit contribution is expected to increase. In response to the "Belt and Road Initiative" initiative, the company has set up an admixture production base in Laos to radiate the Southeast Asian market. We believe that the company's overseas layout is relatively leading, and the new overseas base is expected to help the company explore incremental market space, which is expected to bring considerable revenue and profit contribution in the medium term.

Profit forecast and valuation

Due to the slow recovery of industry demand, we have lowered the company's main business sales and unit profit assumptions, and we have lowered the company's 2023max 24e homing net profit forecast of 25.5% to 250 million / 290 million yuan, and the current stock price corresponds to 2023max 24e 15x/13x Pmax E. We maintain the outperform industry rating, lowering the company's target price by 16.7% to 7 yuan, which is less than the profit adjustment mainly because the industry economy is expected to recover from the bottom, corresponding to 2023x24E 20x/17x Pmax E, implying 32% upside space.

Risk

The recovery of demand is not as expected, and the progress of the launch of new capacity is not as expected.