Main points of investment:

Company announcement: according to the company report, in the first half of the year, the company realized income of 1.258 billion yuan (YoY-9.92%), net profit of 138 million yuan (YoY-28.24%) and non-return net profit of 133 million yuan (YoY-24.01%). The performance is in line with expectations. Among them, 23Q2 achieved an income of 595 million yuan (YoY-12.7%,QoQ-10.1%), a net profit of 59.6 million yuan (YoY-35.1%,QoQ-23.9%), and a net profit of 56.89 million yuan (YoY-26.5%,QoQ-24.9%). Q2 income and profits declined, mainly due to the decline in sales and product prices brought about by the off-season demand for glyphosate Q2 in the lower reaches of aliphatic amine products.

In the first half of the year, sales of aliphatic amines and organic solvents increased steadily, prices fell due to the influence of raw materials, and spices declined by Qiwatton, which led to a year-on-year decline in profits as a whole. According to the company's operating announcement, 1) in the chemical business, the output of aliphatic amines and organic solvents in the first half of the year was about 54600 tons (YoY+9%) and 29300 tons (YoY+7%) respectively, and sales were about 53800 tons (YoY+4%) and 29000 tons (YoY+5%) respectively, mainly due to the increase in the company's share and the slight increase in downstream demand. In terms of prices, aliphatic amines and organic solvents fell 15% and 4% to 12300 yuan and 7782 yuan respectively in the first half of the year, mainly due to a decline in the price of raw materials in the first half of the year, such as the price of acetone, the main raw material, alcohol and propylene, respectively. As a result, the revenue of aliphatic amines fell 12% to 661 million yuan in the first half of the year compared with the same period last year, while the revenue of organic solvents increased by about 1% to 226 million yuan. 2) the sales volume of incense raw materials is affected by the downstream removal of Chihuaton and the relatively low demand in the European market, with production and sales of about 6588 tons (YoY-25%) and 6469 tons (YoY-20%) respectively, but the price is relatively stable, so the overall income fell by about 20% to 227 million yuan compared with the same period last year. Overall, the gross profit margin fell 1.05pct to 23.77% in the first half compared with the same period last year. On the expense side, the sales expense rate, management expense rate, and R & D expense rate as a whole increased 1.82pct compared with the same period last year. Among them, the management expense is due to the increase in staff compensation and environmental protection expenses brought about by the company's business expansion. In terms of financial expenses, the interest expense increased due to the amortization of convertible bonds according to the effective interest rate method in the first half of the year, and the financial expense rate also increased. As a whole, the net profit margin decreased by 2.92pct to 12.25% compared with the same period last year.

Q2 aliphatic amine experienced downstream peak season demand, sales fell slightly, while isopropylamine, ethyl amine prices fell with the raw materials. According to the company's business announcement, the production and sales of Q2 aliphatic amine are 22700 tons (YoY-4%,QoQ-29%) and 24500 tons (YoY-1%,QoQ-16%) respectively, and the price has fallen somewhat with the price of raw materials. According to Baichuan data, the price of Q2 triethylamine and isopropylamine has dropped by 13.1% and 23.2% respectively compared with the previous month, thus making the income of Q2 aliphatic amine about 283 million yuan (YoY-20%, QoQ-25%) as a whole. Organic solvent companies enjoy the advantage of propylene method, which is different from the acetone method with fierce market competition, so the production and sales of Q2 are about 15800 tons (YoY+22%,QoQ+18%) and 16100 tons (YoY+24%,QoQ+26%) respectively, bringing income of about 119 million yuan (YoY+10%,QoQ+11%). The output of spice Q2 remained stable, the sales volume decreased slightly under the influence of Qiwarton, and the price decreased with the fluctuation of raw materials, which made spice Q2 achieve an income of 107 million yuan (YoY-25%,QoQ-12%) as a whole.

As a whole, Q2's gross profit margin fell 2.09pct to 22.67% month-on-month. On the cost side, Q2 sales expense rate, management expense rate, R & D expense rate increased month-on-month as a whole, mainly for R & D expense rate, which is estimated to be mainly invested in extractant-related applications. Net profit margins fell by 1.17pct to 11.63 per cent month-on-month.

In the later period, the production capacity of spice rights and interests increased 10 times, and gradually contributed to the certainty of the growth of the main industry. According to the company's report, by the end of June 2023, the company's fixed assets were about 721 million yuan, an increase of 28.3 million yuan over the beginning of the year, and projects under construction were about 998 million yuan, an increase of nearly 96.64 million yuan over the beginning of the year. the main increment comes from the 74650 tons / year synthetic spice product base construction project of Ningxia Xinhua Company, and the progress of the project is about 80%. At present, the first phase of Ningxia project is in the process of trial production and is expected to be full production in 2024. In the follow-up, Xinrui spices added 18000 tons of spice production capacity, which is expected to be put into production in the middle of 24 years.

It is estimated that in the next 3 years, the company's spice rights and interests production capacity will increase nearly 10 times. The company actively docks the battery recycling enterprises and the whole vehicle factory, and the hundreds of billions of battery recycling market is gradually opened. The previous announcement of the company cooperated with Geely Yaoning on the battery recycling project. According to the company announcement, during the gradual planning of the 10,000-ton battery black material production line of the first phase of the project, after the completion of the construction and operation of the first phase of the project, if the project company is unable to meet the lithium battery treatment needs, carry out post-construction:

The second phase of the project added 40,000 tons of waste lithium batteries per year, and the third phase increased the recycling capacity of 50,000 tons of used lithium batteries per year, totaling 100000 tons of lithium batteries. Xinhua relies on its own advantages of extractant to bring high lithium recovery rate and low recovery cost. At present, it is gradually cooperating with vehicle factories and battery recycling enterprises. This project is the company's first battery resource recycling project, and will gradually enter the hundreds of billions of battery recycling market.

Profit forecast and investment rating: considering the decline in the price of aliphatic amines, the company's battery recycling project has not been put into production, so the profit forecast is lowered. It is estimated that the company's return net profit in 2023-2025 is about 3.2,4.6 and 590 million yuan (the original forecast is 3.9,5.9 and 810 million yuan), corresponding to about 19,13,10 times PE, and the average PE since the company's listing is about 23 times. Maintain a "buy" rating.

Risk hint: spice capacity digestion is not as expected; battery recycling project progress is not as expected.