Event: The company released its semi-annual report for 2023. In 2023, H1, the company achieved operating income of 1,723 million yuan, a year-on-year decrease of 7.5%; realized net profit of 486.8893 million yuan, an increase of 143 million yuan over the previous year; realized net profit of 31.7518 million yuan after deducting non-return income of 31.7518 million yuan, an increase of 72.846 million yuan over the previous year. In the 2023 Q2 quarter, we achieved revenue of 982 million yuan in a single quarter, an increase of 6.1% over the previous year, and an increase of 32.5% over the previous year; net profit achieved at 366.11 million yuan, an increase of 82,321 million yuan over the previous year, an increase of 203.1% over the previous year.

23Q2 The company's performance reversed losses year on year, improved month on month, and carbon fiber revenue increased sharply year on year. In terms of viscose fiber, 23H1 viscose filament and staple fiber achieved revenue of 1,220 million yuan and 0.01.5 billion yuan respectively, a year-on-year decrease of 1.31% and 99.72%, respectively. The gross margins of the two were 17.01% and -0.65%, respectively, with year-on-year changes of +7 and -0.8 pct, respectively.

Among them, the reduction in the amount of viscose filament, and the increase in revenue did not change much. The increase in gross profit was mainly due to the increase in sales price and cost; the sharp year-on-year decline in revenue from viscose staple fiber was mainly due to the change in the business model of viscose staple fiber from the second half of '22 to a contract processing model. This business company was recorded in the form of trade revenue. In terms of carbon fiber, although 23H1's share of sales has gradually increased, the sales price has declined. The business achieved revenue of 175 million yuan, a year-on-year increase of 346.3%, a year-on-year increase of 346.3%, and gross margin of 3.31%, a year-on-year decrease of 16.0 pct.

The front-end carbonization line of the carbon fiber composite project has produced large bundles of carbon fiber, and the integrated carbon fiber layout is getting better and better. In February '23, the company announced that the carbonization line for the 12,000-ton carbon fiber composite project had been successfully completed. Currently, the carbonization line has produced large bundles of carbon fiber, and the back-end pultrusion production line has also entered the installation stage. In addition, the wholly-owned subsidiary Jilin Kaimei currently has a production capacity of 600 tons/year for 1K and 3K small wire bundles of carbon fiber, and Baojing, Jilin (49% of the company's shares) currently has a production capacity of 8000 tons/year of large wire bundle carbon fiber, and plans to develop an annual production capacity of 12,000 tons of carbon fiber by the end of 2025. Furthermore, the Chemical Fiber Group previously issued a promise in March '22 to inject Guoxing's carbon fiber controlling interest into the listed company within 3 years from the date the promise was issued. Guoxing Carbon Fiber's current large wire bundle carbonization line production capacity can reach 25,000 tons per year. Up to now, the Jilin Municipal State-owned Assets Administration Commission and the Chemical Fiber Group have not clearly formulated plans or measures relating to Guoxing's carbon fiber equity.

The leading position in the viscose filament industry is stable, and product performance is continuously optimized. The company is the world's largest manufacturer of viscose filaments. It currently has a production capacity of about 80,000 tons/year, and its domestic market share is as high as 38.1% (production capacity caliber). The company's products are mainly exported, and its downstream customers have spread to more than 20 provinces, cities and autonomous regions in China, as well as Japan, South Korea, Turkey, Pakistan, India, Italy, Germany and many other countries and regions. The company continues to carry out four upgrades around the “continuous, large-scale, homogenization, and refinement” of viscose filaments, deeply optimizes product performance, and accurately increases the differentiation rate of high-end products. The high-end market share exceeds 45%.

Profit Forecast, Valuation and Rating: 23H1 Company's performance improved, and carbon fiber revenue increased significantly year-on-year. Due to the reduction in the amount of viscose filaments and the price of carbon fiber, we lowered the company's profit forecast for 23-24 and added the profit forecast for 25 years. We expect net profit for 23-25 to be 1.16 (38.0% reduction) /2.11 (30.8% reduction) /345 million yuan, respectively. We are optimistic about the future development prospects of the company's transformation and upgrading to carbon fiber series products, and maintain the company's “increase in holdings” rating.

Risk warning: Production capacity release falls short of expectations, product and raw material prices fluctuate, and downstream demand falls short of expectations.