Incident: On August 24, 2023, the company released its semi-annual report. During the reporting period, the company achieved operating income of 697 million yuan, a year-on-year decrease of 15.00%; realized net profit of 142 million yuan, a year-on-year decrease of 31.82%. Among them, Q2 achieved revenue of 347 million yuan in a single quarter and net profit of 72 million yuan. Net revenue and profit were basically the same month-on-month.

Revenue from maleic anhydride derivatives declined year-on-year, and sales increased significantly in the first half of the year. The revenue of maleic anhydride derivatives during the reporting period was 499 million yuan, a year-on-year decrease of 21.44%. In terms of sales volume, maleic anhydride derivatives sold 41,400 tons in the first half of the year, up 23.40% from the previous year; from the price point of view, the average sales price of maleic anhydride derivatives in the first half of the year was about 12,000 yuan/ton. The average price decline of 23H1 maleic anhydride was 6,700 yuan/ton, down about 48% from last year's high price of 13,000 yuan/ton. Cost support weakened. Product prices fell, the price difference narrowed and profit declined. 23H1 gross profit margin fell 27.87% from the same period last year. Currently, product prices have bottomed out. In the long run, the company currently has a production capacity of 71,000 tons and a production capacity of 50,000 tons under construction. The investment in additional production capacity is expected to help the company's performance pick up.

Revenue from functional material intermediates is relatively stable. Functional material intermediates achieved revenue of 112 million yuan, a year-on-year decrease of -2.32%, and a gross profit margin of 44.21%, an increase of 6.97 pct over the same period last year. The company will continue to improve the synthesis process of OLED intermediates to reduce production costs, continue to focus on the development of OLED functional materials, and explore the company's market in the field of other functional material intermediates through research and development of synthesis processes for cryophene and organophosphine compounds.

Profit forecasts and investment recommendations. Due to a sharp drop in product prices, the company's performance forecast was lowered to 1,525, 19.41, and 2,345 billion yuan respectively, and the company's net profit for 2023-2025 was estimated to be 2.95, 3.92, and 475 million yuan respectively (23 and 24 original values were 471, 517 million yuan, new forecast for 25). The corresponding EPS was 1.00, 1.32, and 1.60, giving the company 25 times PE in 2023, corresponding to a target price of 25 yuan, maintaining a “buy” rating.

Risk warning: Capacity investment falls short of expectations; downstream demand falls short of expectations; increased market competition; technology iteration risks; safety and environmental risks; raw material prices fluctuate greatly.