Company announcement: according to the company announcement, the income in the first half of the year is 2.77 billion yuan (YoY-0.53%), the return net profit is 172 million yuan (YoY-19.03%), and the non-return net profit is 176 million yuan (YoY-4.94%). The performance is in line with expectations. Among them, 23Q2 realized income of 1.419 billion yuan (YoY+5.39,QoQ+5.02%), net profit of 105 million yuan (YoY+16.54%,QoQ+55.37%) and non-return net profit of 111 million yuan (YoY+66.32%,QoQ+66.77%). The increase in Q2 income and profit was mainly due to the month-on-month improvement brought about by the full production of Vietnamese factories.

The industrial silk business grew in the first half of the year relying on the gradual volume of Vietnam factories, while cord fabric benefited from an increase in downstream tire demand, and profitability declined due to the impact of downward prices. According to the company's report, 1) the income of polyester industrial filament reached 1.356 billion yuan (YoY+3.73%) in the first half of the year, mainly due to the full release of the annual production capacity of 110000 tons of differential polyester industrial filament (phase I) project in Vietnam, which has now reached the stage of full production, resulting in an increase in volume, but the price is affected by upstream PTA prices. According to Wind data, PTA prices fell 6.4% in the first half of the year compared with the same period last year. The price competition of superimposed ordinary silk is fierce, so the gross profit margin of industrial silk products fell 2.47pct to 15.28% in the first half of the year compared with the same period last year. 2) the income of cord fabric reached 563 million yuan (YoY+4.3%) in the first half of the year, mainly due to the gradual increase in cord fabric sales, the current cord fabric production capacity is 60,000 tons, and the downstream tire demand is relatively strong this year, so it is expected that the company will be able to achieve full production and full sales this year, and the gross profit margin will also decline due to price, falling 4.86pct to 23.3% in the first half of the year compared with the same period last year. 3) for other products, in the first half of the year, the revenue of the company's light box advertising materials, industrial cloth materials, PVC film and stone flooring changed respectively from-0.53%, + 8.39%, + 7.96%,-17.8% to 2.55,1.42,1.24 and 138 million yuan, of which the gross profit margin of light box advertising materials increased to 18.79% compared with the same period last year. Overall, the company's first-half gross profit margin fell 2.47pct to 15.43% compared with the same period last year. On the expense side, the overall sales expenses, management expenses, and R & D expenses are well controlled, and the expense rate goes down as a whole; among the financial expenses, the exchange gain is about 22.89 million yuan; in addition, the loss of fair value change caused by forward settlement and sale of foreign exchange is about 15 million yuan, so the overall net profit margin in the first half of the year fell 1.45pct to 6.24% compared with the same period last year.

Q2 Vietnam factory reached full production contribution increment, cord fabric sales increased month-on-month, so that Q2 revenue and profitability have improved. Previously, the Vietnamese factory was in a state of loss due to low operating rate and reached full production since April, so Q2 was profitable. Among the 110000 tons of industrial silk, airbag wire and seat belt wire are gradually certified, and it is expected that the proportion of special wire will be increased in the follow-up, which will bring about the improvement of product organization. According to the company's report, in May 2023, the European Commission issued a notice on the final anti-dumping of polyester high strength yarn originating in China. According to the anti-dumping investigation against Hailide, Hailide's polyester industrial filament products exported to the European Union will be subject to an anti-dumping duty of 6.9% from May 12, 2023. According to the final ruling, other relevant Chinese companies were levied anti-dumping duties ranging from 9.7% to 23.7%. The increase in anti-dumping duties highlights the advantages of the company's Vietnamese factories, which is also one of the reasons why Vietnamese factories can reach full production quickly. Cord fabric is mainly driven by downstream domestic tire demand and overseas order repair since the second quarter, which led to an increase in sales, which overall led the company's gross profit margin to increase to 17.12% in the second quarter compared with the previous quarter. On the expense side, the overall rates of sales expenses, management expenses and R & D expenses are basically the same, and the financial expenses are estimated to be more than 20 million yuan due to the influence of exchange gains. in addition, due to the loss of fair value changes of about 12 million yuan in the forward settlement and sale of foreign exchange, and the provision for bad debts of about 11.93 million yuan, the overall net profit margin of Q2 increased to 7.41% compared with the previous month.

The production capacity of the main curtain fabric continues to expand, while improving the layout of new materials. According to the company's report, projects under construction have been gradually transformed into solid projects. by the end of June 2023, the company's fixed assets and projects under construction are about 2.827 billion yuan (up 12.63 million yuan from the end of the first quarter) and 519 million yuan (down 30.89 million yuan from the end of the first quarter). The main conversion project is the 110000-ton polyester industrial silk project in Vietnam. In addition, the company previously announced the implementation of a high-performance tire cord fabric project with an annual output of 18000 tons in Vietnam, with a planned investment of about US $52 million. Equipment selection is expected to be carried out step by step in the second half of the year and is expected to be gradually put into production in 2025. Based on the original PVC film business advantages, the company's strategic layout of photovoltaic reflective material products is mainly used to enhance the efficiency of photovoltaic backplane power generation, and has obtained the first order in June 2021 for the installation and use of foreign power stations. In 2022, the company obtained the photovoltaic reflective film invention patent, and spared no effort to accelerate the upgrading of photovoltaic reflective materials. Through the provision of integrated solutions to help customers solve difficult pain points, speed up the landing of orders from customers at home and abroad, and promote industrialization and scale, it is expected to become the next growth driver of the company.

Profit forecast and investment rating: considering the relatively low profit of industrial silk, the profit forecast for 2023-2025 is lowered, and the estimated net profit is about 3.9,4.6,510 million yuan (the original forecast is 4.3,5.3,640 million yuan), corresponding to about 16,14,13 times PE in 2023-2025, with reference to cord fabric Shenma shares, automotive safety textile technology and Chinachem technology 2023 average PE about 20 times, so maintain the "increase" rating.

Risk tips: large fluctuations in raw materials affect profitability; Vietnamese product certification is not as expected; promotion of photovoltaic reflective film is not as expected