Event: On August 25, the company released its semi-annual report for 2023. For the first half of 2023, it achieved operating income (1,723 million yuan, -7.49%), net profit attributable to income (49 million yuan, +151.41%), net profit not attributable to parent (32 million yuan, +177.27%).

2023H1's performance turned a loss into a profit, and carbon fiber revenue increased year-on-year

2023H1 Company focused on annual business goals, adjusted production and operation strategies in due course, and developed steadily in the first half of the year. During the reporting period, the company's main business included the production and sale of viscose filaments and carbon fibers, and contract processing of viscose staple fibers. By product, (1) viscose filament achieved sales revenue (1,220 million yuan, -1.31%). During the reporting period, production capacity and demand for viscose filaments were relatively stable, volume reductions, price increases and revenue did not change much, and sales price increases combined with cost reductions and improved profits. Gross margin increased by 7 pct to 17% over the same period last year.

(2) Viscose staple fiber achieved sales revenue (1.52 million yuan, -99.72%), mainly because the company began adopting a contract processing business model in the second half of last year, which led to a decline in revenue, but the model of charging stable processing fees ensures that staple fiber performance is not affected by market fluctuations.

(3) The carbon fiber business achieved revenue of 175 million yuan, an increase of 346.30% over the previous year, and its share of sales increased from 3% in '22 to 10%. The gross margin of carbon fiber fell 15.96 pct to 3.31% year on year, mainly due to the supply and demand pattern. The market price of carbon fiber products fell, and the industry was under phased pressure.

On a quarterly basis, in 2023, Q1/Q2 achieved revenue of 741/982 million yuan respectively, Q2 increased 6.05% year on year and 32.52% month on month; net profit of Q2 was 0.12/037 million yuan, Q2 increased 180.10% year on year, and 208.33% month on month. The performance side showed a steady growth trend.

Expense rates remained stable during the period, and profitability showed an increasing trend. The gross margin of 2023H1 was 13.12%, an increase of 5.25 pct over the previous year, and a net margin of 2.83 pct. The cost rate for the period increased by 1.19 pct to 10.18% over the same period last year. Among them, the financial rate increased by 0.65 pct, the management fee rate increased by 0.41 pct, and the sales rate increased by 0.13 pct.

The carbon fiber business is progressing smoothly, and the future market space is broad. In the first half of 2023, the company's carbon fiber production line was released smoothly. The subsidiary Kamec mainly used 1K and 3K small wire bundles; in terms of large wire bundles, in 2022, the company will raise 900 million yuan to build 12,000 tons of carbon fiber composite projects. The large wire bundle carbon fiber produced by the front-end carbonization line during the reporting period contributed to the company's performance. Carbon fiber products are currently affected by the supply and demand pattern, and the industry is under pressure in stages, but in the long run, the civilian large-wire carbon fiber racetrack is still booming, and the growth of new power sources, mainly wind and light, is expected to drive demand for large-wire carbon fiber for civilian use. Furthermore, with the gradual maturity of the carbon fiber industry and the smooth advancement of terminal application technology, and the reduction of superimposed production costs, large-bundle carbon fiber is expected to open up more industrial use scenarios, and the future space is broad.

Investment advice: As a viscose filament lead, the company has a strong position in traditional business.

At the same time, relying on the advantages of industrial clusters, the company is actively laying out new carbon fiber materials business.

We expect the company's net profit from 2023-2025 to be 1.2, 230 million yuan, and 370 million yuan respectively, giving 82 times PE in 23, corresponding to a six-month target price of 4.0 yuan, and maintaining a “buy-A” rating.

Risk warning: Demand for viscose filaments falls short of expectations; carbon fiber production falls short of expectations; the development of wind power, optoelectronics, hydrogen energy and other industries falls short of expectations.