The company released the report for the first half of 2023

23H1 achieved operating income of 968 million yuan, a year-on-year decrease of 22.65%, a year-on-year decrease of 0.90 million yuan, a year-on-year decrease of 53.27%, a year-on-year decrease of 53.27%, net profit of non-attributable net profit of 86 million yuan, a year-on-year decrease of 54.26%.

The overall shipment volume of the masterbatch business remained stable, and gross margin increased

In the first half of the year, the company's masterbatch business achieved revenue of about 306 million yuan, a year-on-year decrease of 12.30%, operating costs of about 259 million yuan, a year-on-year decrease of 15.65%, a gross margin of 15.27%, and a year-on-year increase of 3.36 pct. Affected by overall industry demand, masterbatch sales have remained basically the same. The unit price has declined, but the unit cost has dropped even more.

Affected by weakening downstream demand, the fine chemical business is under pressure. Low inventories are expected to improve in Q4. In the first half of the year, the subsidiary Yingzheng Sanchuang achieved revenue of about 612 million yuan, a year-on-year decrease of 29.96%. Among them, the polychlorochloride business achieved revenue of about 45,400 yuan, a year-on-year decrease of 38.09%. Due to weakening downstream demand, the fine chemical business, especially melamine products, is under pressure. Unit sales prices have declined, but the supply chain is gradually being de-inventoried, and it is expected that Q4 will improve.

The diaphragm business has successfully started a rise in production capacity, and downstream customers with a forward-looking layout are expected to continue to contribute incrementally in the first half of the year, and the subsidiary Anhui Meixin achieved revenue of about 22 million yuan. Four lithium battery wet membrane production lines were put into operation in 2022, with a total production capacity of 300 million m2/year. In 23, 400 million m2 of production capacity may be added. A total production capacity of 1.3 billion m2 is planned in the long term.

The company's forward-looking layout has reached cooperation with battery manufacturers such as Anchi, Baolixin, and Shenzhen Memadeng. It has already supplied lithium battery separators such as power and energy storage in batches. As customer diaphragm certifications are completed one after another, the smooth rise in production capacity is expected to continue to contribute to growth.

Prussian sodium-electric energy storage received its first demonstration application, with a multi-dimensional layout creating a leader in the Prussian sodium electricity industry 1) The first application of the Prussian blue sodium-electric energy storage project: In July, holding subsidiaries, Liaoning Meicai Tongxing, Hunan Cube New Energy, and Liaoning State Grid jointly built the first Prussian blue sodium ion energy storage demonstration project, proving the viability of the Prussian route; it is expected that other demonstration projects will continue to be completed by the end of the year. The project's energy storage capacity will also gradually increase.

2) Multi-dimensional layout to create a leader in the sodium electricity industry: In June, the company increased its capital to Hunan Cube New Energy by 40 million yuan, holding 2.0196% of its shares; Prussian route sodium batteries have the advantages of high energy density, stable structure and low cost; Meicai Meicai cooperates with Hunan Cube and Starry Sky Sodium Electric in the entire industry chain. Material manufacturers have joined forces with downstream battery manufacturers and applicators to explore the market, strongly proving the applicability and economy of Prussian sodium-electric energy storage to promote industrialization.

3) The steady release of Prussian blue cathode production capacity may become a new growth pole for the company: Huihong Technology's “5,500 tons/year Prussian Blue Cathode Material Technical Transformation Project” has completed the 1,000 tons/year production capacity engineering transformation and has begun trial production. The remaining projects are expected to be completed before the end of the year. Production capacity will gradually be released, or it may become a new growth point.

Investment advice: The company's net profit is expected to be 2.54/4.00/6.08 billion yuan (previous value: 3.48/5.49/7.65) for 23/24/25, corresponding P/E to 30x/19x/12x, maintaining a “buy” rating.

Risk warning: New energy vehicle development falls short of expectations; capacity expansion product development falls short of expectations; material price fluctuations, etc.