Events:

The company released its mid-2023 report: the company's operating income in the first half of 2023 was 616 million yuan, down 31.34% from the same period last year; its net profit was 58 million yuan, down 63.83% from the same period last year; and the weighted average rate of return on net assets was 1.96%, down 3.59% from the same period last year. The gross profit margin of sales was 32.59%, down 4.62% from the same period last year; the net profit margin of sales was 9.46%, down 8.50% from the same period last year.

Among them, Q2 achieved revenue of 342 million yuan in 2023,-27.57% year-on-year, + 24.86% month-on-month; net profit of 44 million yuan,-45.64%, + 214.55%, 1.50%, 1.30% lower and 1.03% higher than the same period last year. The gross profit margin on sales was 32.87%, down 3.79% from the same period last year, an increase of 0.62% over the same period last year; and the net sales margin was 12.93%, down 4.30% from the same period last year, and 7.80% higher than the previous year.

Main points of investment:

Dragged down by the periodic downturn in consumer electronics, 2023H1's overall performance was under pressure in the first half of 2023. In the first half of 2023, the company achieved revenue of 616 million yuan, year-on-year-31.34%, month-on-month + 5.66%, and homed net profit of 58 million yuan,-63.83% year-on-year and-26.58%. In the first half of 2023, the company's homing net profit declined compared with the previous year, mainly due to the continuous cold demand of downstream terminal consumer electronics, which led to the decline of display materials; at the same time, the decline in revenue led to the weakening of economies of scale and the increase of unit production costs. leading to a decline in gross profit margin. From a sub-sector point of view, 2023H1 display materials achieved revenue of 511 million yuan, month-on-month ratio + 15.33%; pharmaceutical intermediates revenue of 77 million yuan, month-on-month ratio of-33.20%; and electronic chemicals plate and other products revenue of 28 million yuan, month-on-month ratio of + 28.50%. In terms of period expense rate, in the first half of 2023, the company's sales / management / financial expense rate was 1.96%, 13.58% and 2.41%, respectively, compared with the same period last year. During this period, the expense was properly controlled, in which the decline in sales expense rate was caused by the decrease in consulting agency fees, and the decrease in financial expense rate was mainly due to the increase in exchange earnings, while the change in management expenses was small. The increase in rates is due to a decrease in revenue compared with the same period last year. The net cash flow generated by 2023H1's operating activities was 181 million yuan, + 222.43% compared with the same period last year, mainly due to a sharp drop in cash paid for goods and services under the company's strategy of digesting inventory.

The profit in the second quarter improved significantly compared with the previous quarter, and it is optimistic that the performance in the second half of the year will continue to repair. In the second quarter of 2023, the company achieved a net profit of 44 million yuan, year-on-year-37 million yuan, month-on-month + 30 million yuan, including gross profit of 112 million yuan, month-on-month ratio of + 24 million yuan, financial expenses of-12 million yuan, month-on-month ratio of-9 million yuan. The company's gross profit increased month-on-month, mainly due to the gradual pick-up in panel industry demand in the second quarter. According to DSCC data, the total TFT investment of all panel manufacturers in the first quarter of 2023 was 69 million square meters, and the total TFT investment in the second quarter of 2023 is expected to be 78.9 million square meters, an increase of 14% compared with the previous quarter. The decrease in financial expenses compared with the previous month or due to the increase in exchange gains. In terms of period expense rate, the sales / management / financial expense rate of 2023Q2 company is 1.45%, 12.13%, 3.41%, respectively, year-on-year-0.76/+2.49/-2.37pct, month-on-month-1.15/-3.25/-2.25pct. Looking forward to the second half of the year, with the gradual repair of terminal consumer electronics demand, the display material is expected to pick up, which will lead to the continuous improvement of the company's profits.

Show that the material is expected to repair, the company's electronic material multi-point layout in the second half of 2022, the crop rate of some panel factories has been less than 50%, the panel price has fallen below the cost price, after nearly half a year of inventory clearance, panel prices gradually stopped falling and stabilized from the end of 2022 to the beginning of 2023, and the supply chain is gradually returning to a healthy inventory level. The company shows that the material business is in the upstream of the display panel industry, and there is a certain time lag in the transmission of the industry chain. since the first quarter of 2023, the income of the material business has shown a quarter-on-quarter upward trend, and it is expected to enter the business cycle with the recovery of terminal demand. At the same time, the company actively distributes other electronic information materials, including semiconductor photoresist monomer, TFT flat layer photoresist, film material intermediate and polyimide monomer, etc., and some mass-produced products maintain a trend of rapid growth. At present, EUV photoresist monomer has passed the pilot verification of foreign customers and is doing mass production verification, while domestic customers are in the stage of cooperative research and development or sample delivery; TFT flat layer photoresist has sent samples to many customers for verification, and some customers have passed the first round verification. At the same time, the company announced on August 25 that Dalihaitai, a wholly-owned subsidiary, plans to invest in the construction of photoresist and high-end new materials industrialization project, with a total investment of 491 million yuan, of which the first phase of the project invests 83 million yuan and the construction period is 12 months.

Profit Forecast Company is one of the few domestic enterprises with large-scale R & D and production of OLED materials and liquid crystal materials, which occupies an important position in the global display material supply system and has strong market competitiveness. At present, the coordinated development of various plates of the company shows that the material plate has established long-term and stable cooperative relations with customers at home and abroad, including Merck, JNC, Dupont, Idemitsu, Doosan, SFC, LG chemistry, 800 million time and space, Jiangsu Hecheng, Chengzhi Yonghua, etc.; Pharmaceutical CDMO plate as an important development strategic direction of the company, the product pipeline continues to expand; the sales volume of electronic chemicals plate increases year by year, which can be expected in the future. It is estimated that the company's net profit from 2023 to 2025 will be 1.75,2.96 and 386 million yuan respectively, corresponding to 29,17 and 13 times PE respectively. Considering the company's future growth, the company will be covered for the first time and given a "buy" rating.

Risk prompts the landing of policies, the progress of new capacity construction is not up to expectations, the contribution of new capacity is not up to expectations, raw material prices fluctuate, environmental protection policies change, and the economy declines substantially.