Event: on August 29, the company released its 2023 semi-annual report, with operating income of 1.664 billion yuan, down 8.67% from the same period last year, and net profit of 209 million yuan, down 27.67% from the same period last year. Corresponding to gross profit margin of 26.18%, down 2.41pct from the same period last year; net profit margin of 12.58%, down 3.31pct from the same period last year. The main reasons for the decline in operating income and net profit compared with the same period last year are: 1) the decline in the price of raw materials in the first half of 2023 led to the decline in product prices; 2) the basic investment in R & D in the first half of 2023 increased by 10.9847 million yuan compared with the same period last year. Among them, the business income of high-performance rubber auxiliaries was 1.038 billion yuan, down 13.88% from the same period last year, and the gross profit margin was 28.78%, down 2.53 pct from the same period last year; the business income of multi-functional rubber auxiliaries was 625 million yuan, up 1.55% from the same period last year, and the gross profit margin was 21.84%, down 1.27% from the same period last year.

The 2023Q2 ratio improved and the demand for rubber auxiliaries rebounded. According to the statistics of the Rubber Additives Professional Committee of the China Rubber Industry Association, in the first half of 2023, the cumulative industrial output value of the rubber auxiliaries industry was 14.17 billion yuan, down 8% from the same period last year; sales revenue was 13.77 billion yuan, down 5% from the same period last year; exports were 4.637 billion yuan, down 10% from the same period last year; total output was 741000 tons, up 10% from the same period last year; and exports were 192000 tons, up 4% from the same period last year. About 7% downstream of rubber auxiliaries become the tire manufacturing industry, and the operating rate of domestic tire enterprises in 2023H1 is at a high level. According to the National Bureau of Statistics, the cumulative output of 2023H1 rubber tyres in China is 475 million, an increase of 13.9% over the same period last year. The overseas and domestic demand of 2023Q1 shrank synchronously, and the market of rubber auxiliaries was relatively low, but the export performance of domestic tires of 2023Q2 was good, and the demand for rubber auxiliaries for tires rebounded obviously. 2023Q2 realized operating income of 853 million yuan, down 11.72% from the same period last year, up 5.18% from the previous year, and realized net profit of 121 million yuan from the same period last year, down 31.26% from the same period last year and up 37.5% from the previous year. The upstream demand drives the rubber auxiliaries market to rise in both quantity and price. at present, the inventory of auxiliary enterprises continues to be low, and the downstream enterprises near the National Day holiday are actively preparing stocks, and there is a strong atmosphere of rising prices in the auxiliary market.

Multi-point layout of new and old products, capacity expansion-driven growth. The company takes strengthening the main business of rubber auxiliaries as the core, actively expanding in the direction of life health chemicals and other fine chemicals. With Derek 10,000 tons of rubber anti-coke agent CTP project, 10,000 tons resin project, annual production of 65000 tons of silane coupling agent and other projects, special silicon new materials annual production of 40,000 tons of trichlorosilicon co-production of 6500 tons of silicon tetrachloride project, Huatai new materials annual production of 15000 tons of organic peroxides orderly promotion, the company's long-term growth momentum is sufficient.

Investment suggestion: the company's earnings per share from 2022 to 2024 are expected to be 1.15,1.46,1.85 yuan respectively, and the corresponding share price PE is 8.46,6.69,5.27 times respectively. Considering that the company is a leading manufacturer of comprehensive rubber auxiliaries, rich projects under construction are expected to be concentrated in 2024 and 2025, maintaining the "buy" rating.

Risk hint: the progress of the project under construction is not as expected; the recovery of downstream demand is not as expected; the risk of product price fluctuation.