Incident: On August 29, the company released its 2023 semi-annual report. 2023H1 achieved revenue of 644 million yuan, +13.55% year-on-year; realized net profit of 35 million yuan, or 35.88% year-on-year.

Gross margin was under pressure, and performance declined somewhat. 2023H1 achieved revenue of 644 million yuan, +13.55% year on year; realized net profit of 35 million yuan, year on year, -35.88%; gross profit margin of 22.79%, year on year -3.27 pct; net interest rate of 5.28%, year on year -4.07 pct. From the cost side, in the first half of the year, the company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio were 3.61%/7.11%/-0.25%/6.14%, respectively, and +0.68%/+0.40%/-0.86%/+0.96%, respectively. Profits have declined sharply. On the one hand, gross margin has declined due to falling sales prices for the company's main customers; on the other hand, the company has increased its international management team, expanded international markets and emerging market development, and increased management and sales expenses.

In 2023H1, the company's net cash flow from operating activities was 118 million yuan, +34.03% year-on-year, mainly due to the company strengthening receivables management, improving operational efficiency, and further enhancing the company's ability to withstand risks.

Adhere to the long-term development strategy of the four major application areas and actively expand products and customers. 1) In the consumer electronics industry, the company has further expanded product applications and solutions, invested resources in high-growth new consumer electronics terminals such as AR/VR devices, folding screen phones, smart projectors, and wearable devices, and reduced its dependence on traditional consumer electronics such as mobile phones, computers, and tablets. Currently, the company's high thermal conductivity graphite products have been used in epoch-making advanced MR products for major customers in North America. 2) Digital infrastructure industry. In the past two years, the company has expanded from a simple communication business to a digital infrastructure business, covering all aspects of digital information collection, transmission, storage and processing of terminal electronic equipment. Currently, it has completed thermal management, electromagnetic shielding and other industry solutions in the above industries, and is promoting other industry solutions to customers. In the server/data center field, the company has now supplied many domestic and foreign enterprises in batches. 3) In the intelligent transportation industry, the company has obtained a designated development project or supplier code from Xiaopeng, a German parts company in the top 3 in the world and a new domestic car builder. At the same time, some projects have already been supplied in batches. 4) In the field of clean energy, the company is currently developing in-depth cooperation with leading companies in the industry in various fields such as photovoltaics and energy storage, and some have already formed batch sales. On the basis of the existing lithium optical storage business, the company will actively track the development trend of the hydrogen energy industry and explore application scenarios of comprehensive electronic equipment reliability solutions in the hydrogen energy industry based on the company's existing core technology and R&D platform.

Adhere to independent research and development to create cross-cutting advantages in multiple technologies. The company adheres to the development path of independent research and development. In the technical field it is engaged in, through long-term continuous investment and accumulation, we ensure that the company's R&D standards are always at the cutting edge of technology, leading the technological development of the industry in several directions. In various technical fields such as synthetic graphite technology, natural graphite, thermal interface material technology, electromagnetic shielding materials, heat pipes, heat dissipation plates, thermal module technology, etc., they have established independent R&D teams and experimental platforms, maintain advanced technical reserves, and intersect in various technical fields to form the company's unique technical competitiveness, which can comprehensively and quickly diagnose and analyze pain points in thermal management fields, and provide, simulate, and verify comprehensive thermal management solutions for customers. Thus, we respond quickly to the development and changes of the industry and fully participate in the entire process from early design to final mass production and delivery.

Profit forecast and investment rating: We expect the company's net profit to be 213/2.35/259 million yuan respectively from 2023-2025, EPS of 0.76/0.84/0.92 yuan respectively, and the corresponding PE of the current stock price to be 24/22/20 times, respectively, maintaining the “buy” rating.

Risk warning: Industry competition increases risk, customer expansion falls short of expectations, risk of raw material price fluctuations, risk of macroeconomic fluctuations.