The company's overall performance in the first half of 2023 is in line with expectations, and with the gradual advance of the company's lithium extraction business, profitability is expected to continue to improve. At present, the low-temperature pretreatment nanofiltration membrane system independently developed by the company is conducting a pilot test for the original halogen lithium extraction process suitable for Tibet; in terms of extracting lithium from ores, the pilot-scale test of self-developed membrane process for extracting lithium from ores has been completed, and the lithium exhalation rate is up to 99%. We maintain the company's 2023-2025 EPS forecast of 0.50 pound 0.68pm 0.87 yuan. Taking into account the comparable company valuation level, as well as the company's advanced membrane material production technology, give the company 50 times PE in 2023, maintain the target price of 25 yuan, maintain the "buy" rating.

Business profile: the company's revenue in the first half of 2023 was 191 million yuan, + 36.94% compared with the same period last year, and the net profit was 23 million yuan, + 232.53%. From a quarterly point of view, revenue in the second quarter of 2023 reached 102 million yuan, + 45.71% compared with the same period last year, and the net profit returned to the mother was 16 million yuan, + 122.98% compared with the same period last year. With the recovery of downstream demand, the company's orders increased steadily, and the overall performance was in line with expectations. Looking to the future, with the gradual advance of the company's lithium extraction business, profitability is expected to continue to improve.

Domestic membrane materials leader, actively develop lithium extraction business, continue to increase R & D investment. Only Cyber was founded in 2001, the core value link in the focus membrane industry chain over the past 20 years, the main products include nanofiltration membrane and reverse osmosis membrane products, composite pressure tank and so on. It is the only enterprise in China to carry out R & D and large-scale production of membrane components and supporting equipment at the same time. Since 2019, the company has actively developed new energy lithium extraction business, laying out new membrane material separation fields such as salt lake lithium extraction, lithium clay lithium extraction and so on. According to the summary of investor research disclosed by the company in January 2023, in terms of lithium extraction from original halide, pilot tests such as low-temperature pretreatment nanofiltration membrane and other membrane systems developed for salt lake in Tibet are being carried out; in terms of lithium extraction from ores, self-developed membrane process for lithium extraction from ores, the relevant pilot tests have been completed. According to the mid-2023 report, during the reporting period, the company continued to increase R & D investment in key technologies for lithium extraction in salt lake, special nanofiltration membrane for lithium extraction from salt lake, lithium ore membrane process for lithium extraction from lithium ore, and lithium extraction from salt lake in Tibet. The overall R & D expenditure rate of the company reached 7.82% in the first half of 2023, the highest level in history.

The production technology of membrane material is advanced and there is a wide space for domestic substitution. Only Cyber membrane material production technology is leading in China, with high barriers to formula and production process, and high level of equipment automation. From the core indicators such as water production flux and desalination rate, the product performance has reached the international advanced level. Salt Lake Lithium extraction is in line with the company's technical gene, the company created low-temperature pretreatment nanofiltration membrane, high-salt concentrated membrane and other membrane systems, related products have entered the pilot stage. We estimate that the market size of lithium extraction film from salt lake will reach 1.25 billion yuan in 2025, about 4 times that of 2022. In addition to lithium extraction from salt lakes, with the rapid development of tap water standard extraction, ultra-pure water preparation, water resources development and other industries, we expect that the domestic reverse osmosis membrane and nanofiltration membrane market will reach 11.4 billion yuan and 1.8 billion yuan respectively in 2025, corresponding to a compound annual growth rate of 10% and 23% from 2021 to 2025. According to the data of Huajing Industrial Research Institute, at present, foreign giants account for more than 80% of China's reverse osmosis membrane and nanofiltration membrane market. After a long period of development, a small number of domestic membrane material manufacturers represented by Wharton Technology and WiSeiber have accumulated more project cases, and the competitiveness of products is constantly increasing. In the future, domestic enterprises are expected to gradually occupy the market share of international giants by virtue of the advantages of cost and localization as well as new products for specific areas, so as to realize the domestic substitution of the membrane industry.

In addition, the company also won the bid for the first nanofiltration demonstration project in the 13th five-year Plan, and is expected to continue to benefit from the construction of direct drinking water in various places in the future.

Risk factors: lithium extraction business progress is not as expected; technology research and development is not as expected; domestic substitution of reverse osmosis membrane and nanofiltration membrane is not expected; raw material dependence on import risk; exchange rate fluctuation risk; market competition intensified.

Profit forecast, valuation and rating: only Cyber deep ploughing membrane materials for more than 20 years, is one of the few domestic enterprises that simultaneously carry out reverse osmosis and nanofiltration membrane materials, membrane components pressure vessels and composite pressure vessels and other three categories of product research and development and large-scale production. The company took the lead in laying out the salt lake lithium extraction business in 2019 and has become the membrane material supplier of the Qinghai salt lake lithium extraction membrane separation project. With regard to the original halogen lithium extraction process suitable for Tibet, the low temperature pretreatment nanofiltration membrane system independently developed by the company is conducting a pilot test; in terms of extracting lithium from ores, the pilot test of the self-developed membrane process for extracting lithium from ores has been completed, and the lithium exhalation rate is up to 99%. With the breakthrough of the company in lithium extraction business, profitability is expected to be significantly improved. We maintain the company's 2023-2025 EPS forecast of 0.50 won 0.68 won 0.87 yuan. Considering the valuation level of the comparable company (the average Wind of Jiuwo Hi-Tech and Lanxiao Technology is about 35x in 2023), compared with the comparable company, we think that Weibo deserves a certain valuation premium, mainly due to the company's leading domestic production technology of reverse osmosis membrane and nanofiltration membrane, high barriers to formula and production process, and high level of equipment automation. The original membrane systems such as low temperature pretreatment nanofiltration membrane, high salt concentrated membrane and membrane process for extracting lithium from ores have a broad space for follow-up growth. We conservatively forecast that the company's net profit will grow at a compound growth rate of 94% from 2023 to 2025, with a conservative value of 0.57 times PEG (a lower value for comparable companies), and a corresponding PE multiple of 54 times. Considering the PE and PEG valuation methods, the company will be given 50 times PE in 2023, maintaining the target price of 25 yuan and maintaining the "buy" rating.