Key points of investment

Incident: The company released its semi-annual report for 2023, achieving revenue of 697 million yuan, a year-on-year decrease of 15.00%; net profit of 142 million yuan, a year-on-year decrease of 31.82%; net profit after deducting non-return net profit of 126 million yuan, a year-on-year decrease of 36.35%. 2023Q2's quarterly revenue was 347 million yuan, down 21.79% year on year and 0.72% month on month; net profit returned to mother was 72 million yuan, down 42.31% year on year, up 2.36% month on month; net profit of non-return mother net profit was 65 million yuan, down 44.73% year on year, up 6.90% month on month. The gross margin of 2023Q2 was 26.88%, down 8.91 pct from 2022Q2 and 2.38 pct from 2023Q1.

The amount of anhydride increased and decreased, and gross profit per ton declined markedly. In the first half of 2023, the company's anhydride revenue was 499 million yuan, down 21.44% year on year; sales volume was 41,400 tons, up 23.40% year on year, of which sales volume of products used in the wind power sector accounted for more than 10%; the average price was 12,000 yuan/ton, down 36.33% year on year, mainly affected by falling raw material prices. According to Longzhong Chemical, the market prices of maleic anhydride and butadiene, which are the main raw materials of 23H1 anhydride, were 6927 yuan/ton and 8,209 yuan/ton, respectively, down 34.22% and 11.45% year-on-year, respectively. 23H1's gross profit per ton of anhydride was 3,360 yuan/ton, a year-on-year decrease of more than 50%. The company's 50,000-ton maleic anhydride derivative project is progressing steadily, and the production capacity will expand to 121,000 tons after production is put into operation.

The gross margin of functional material intermediates has clearly rebounded. 23H1 functional material intermediates earned 1,115 million yuan, a year-on-year decrease of 2.32%; gross margin was 44.21%, an increase of 6.97 pct over 22H1. The company's functional materials intermediate customers include many international OLED materials vendors. Many orders are in the long order model. The year-on-year decline in raw material prices has led to an increase in the gross margin of this business.

Investment suggestions: The company is a leading maleic anhydride derivative in China. Benefiting from increasing investment in smart grids and ultra-high voltage transmission lines, the promotion of wind power energy throughout the country, and the widespread application of new composite materials, downstream demand continues to grow. Considering the pressure on maleic anhydride derivatives, we adjusted the company's net profit forecast for 2023-2025 to 300 million yuan, 399 million yuan, and 479 million yuan (originally 501 million yuan, 655 million yuan, and 726 million yuan) to maintain the “increase in holdings” rating.

Risk warning: the risk that the company's project construction is slower than expected; the risk of fluctuations in raw material prices; the risk that downstream demand falls short of expectations.