The company released the mid-2023 report that 2023H1 realized income of 1.815 billion yuan, with a decrease of 9.50%; net profit from home was 125 million yuan, with a decrease of 7.93%; net profit from non-return was 115 million yuan, with a decrease of 7.36% with EPS 0.18 yuan, with a decrease of 5.26%.

The profitability of 23H1 admixture business is enhanced, the market share is increasing, and the company's buy rating is maintained.

Support the main points of rating

23H1's revenue and net profit declined, and its operating cash flow declined. The revenue of 2023Q2 Company was 1.035 billion yuan, same as a decrease of 7.85%, and the net profit returned to its mother was 77 million yuan, a decrease of 4.12%. In terms of cash flow, the net operating cash flow of 23H1 Company was 62 million yuan, with a decrease of 56.97%, with a decrease of 10.77%, with a net operating cash flow of 131 million yuan. The net operating cash flow of the company decreased in the first half of the year, mainly due to the decrease in sales rebates during the reporting period.

Profitability increased slightly, during which the expense rate increased compared with the same period last year. The gross profit margin of 2023H1 is 20.69%, with an increase of 0.49pct, and the net return rate is 6.88%, with an increase of 0.12pct. 23Q2's gross profit margin is 21.09%, with an increase of 0.74 pct; the net return to the mother is 7.42%, with an increase of 0.29pct. The expense rate of 2023H1 during the period was 13.48%, with the same increase of 1.51pct, in which the sales / management / R & D / financial expense rate changed 0.70/0.36/0.43/0.03pct respectively compared with the same period last year. The expense rate of 2023Q2 during the period is 12.69%, with the same increase of 1.40pct, in which the sales / management / R & D / financial expense rate changes 0.77/0.28/0.43/-0.08pct respectively compared with the same period last year.

The development of testing business is smooth, and the profitability of admixture business is significantly improved. The national market of traffic engineering inspection business of 2023H1 Jianyan testing Group has been developed smoothly, and the testing qualification of electronic and electrical testing center has been continuously expanded. In the first half of the year, the price of ethylene oxide, the company's main admixture raw material, showed a continuous downward trend, and the company's cost pressure continued to reduce; the company's admixture new materials business gross profit margin also increased year-on-year, an increase of 4.49pct to 24.70% over 2022H1.

Admixture and testing business has significant advantages, the company's future development can be expected. By the end of June 2023, the company's total domestic synthetic production capacity had reached 1.389 million tons by the end of this report. Kezhijie New Materials Group ranked first in market share in Fujian, Guizhou, Chongqing, Hainan, Shaanxi and Shanghai. Fujian and Hainan have a local market share of more than 30%. In the field of testing business, Jianyan testing Group Co., Ltd. has multi-field and omni-directional testing and certification strength, and has a highly qualified and efficient technical service platform. It is an early testing and certification organization to achieve "cross-regional and cross-domain" development in China, with significant development advantages.

Valuation

The company's performance declined slightly in the first half of the year, and we adjusted our profit forecast accordingly. It is estimated that the income of the company from 2023 to 2025 is 42.9,47.5 and 5.35 billion yuan, the net profit of returning to the mother is 3.1,3.8 and 440 million yuan respectively, and the EPS is 0.43,0.52,0.62 yuan respectively. Maintain the company's buy rating.

Main risks faced by rating

Production capacity is lower than expected, raw material prices are rising, and demand is lower than expected.