Incident: The company released its 2023 interim report. In the first half of the year, the company achieved operating income of 940 million yuan, an increase of 11.1% over the same period of the previous year, achieved net profit of 60 million yuan, a decrease of 9.2% over the same period of the previous year; and achieved a basic EPS of 0.33 yuan. Looking at the second quarter alone, we achieved revenue of 470 million yuan, -1.9% year on year, +2.4% month on month, net profit of 0.4 billion yuan, +0.51% year on year, and +133.3% month on month.

Product sales picked up, prices fell, and revenue increased in the first half of the year without increasing profit. In the first half of the year, the company achieved operating income of 940 million yuan, +11.1% over the same period of the previous year, and net profit of 60 million yuan from the same period last year. The gross profit margin was 12.2% compared to the same period last year, and -1.5 pp from the same period last year. By product, in the first half of the year, silicon dioxide achieved revenue of 350 million yuan, +11.2%, gross profit margin of 18.9%, and 0.98 pp year on year; carbon black achieved revenue of 560 million yuan, +9.5% year on year, and gross profit margin of 6.9%, and -2.09 pp year on year. There was a positive increase in revenue in the first half of the year. The main reason was that sales conditions were relatively good, and sales of all products increased. Net profit declined year on year because of lower raw material prices combined with intense competition in the industry, and higher customer expectations and amplitude of product price cuts: According to Zhuochuang information, due to the influence of upstream raw materials such as coal tar, carbon black prices first fell rapidly in 2023, then rebounded steadily. The average sales price of carbon black in the first half of the year was 9321.8 yuan/ton, -7.4% year-on-year; the average market price of sulfuric acid in the first half of the year was 212.5 yuan/ton, -72.1%; the average market price of soda ash in the first half of the year was 2512.2 yuan/ton, -6.4% year-on-year.

Looking at the second quarter alone, we achieved revenue of 4.7 billion yuan, -1.9% year on year, +2.4% month on month, net profit of 0.4 billion yuan, +0.51% year on year, and +133.3% month on month. Revenue and net profit improved significantly month-on-month in the second quarter. The main reason may be: on the demand side, low tire manufacturers' inventories in April, stable starting load in the tire industry throughout the second quarter. Coupled with a recovery in export orders, it supported the demand side; on the cost side, affected by high temperatures, coal tar prices continued to fall in the second quarter, and the domestic sulfuric acid market also reached a low point in the first half of the second half of the second quarter. Strong demand support and falling costs led to a significant improvement in the profitability of the company's products in the second quarter.

Break through stuck neck technology to achieve sustainable co-development. The company has seized the opportunities of high-voltage power grid trends and the booming development of new energy vehicles and supporting industries. The construction of the “Nano Carbon Materials Project with an Annual Output of 100,000 Tons of High-Voltage Cable Shielding Materials” project is progressing steadily, with the aim of achieving domestic replacement of nanocarbon materials for high-voltage cable shielding materials. According to the company's estimates, after the project is delivered, it is expected to contribute 1.58 billion yuan in revenue and 270 million yuan in net profit every year, enhancing the company's long-term sustainable development capabilities.

The proposed repurchase will serve as an incentive for employees, demonstrating confidence in long-term development. On August 31, 2023, the company issued a repurchase announcement. It intends to repurchase a total amount of not less than RMB 20 million (inclusive) and not more than RMB 40 million (inclusive) through centralized bidding transactions. The repurchase price shall not exceed RMB 17.00 per share for equity incentive plans and employee stock ownership plans. The repurchase plan shows confidence in the company's development, further establishes and improves the company's long-term incentive mechanism, and promotes the company's sustainable and healthy development.

Profit forecasts and investment recommendations. It is estimated that EPS in 2023-2025 will be 0.63 yuan, 0.97 yuan, and 1.68 yuan respectively, and the corresponding dynamic PE will be 26 times, 17 times, and 10 times, respectively, maintaining the “buy” rating.

Risk warning: The risk of a sharp decline in the economy, the risk of project commissioning falling short of expectations, the risk of downstream demand falling short of expectations, and the risk of large fluctuations in raw material prices.