Event: on August 31, 2023, Akree released the 2023 mid-term report that the company's 1H23 operating income was 279 million yuan, down 31.80% from the same period last year; the return net profit was 16 million yuan, down 78.34% from the same period last year; and the non-net profit was 14 million yuan, down 80.81% from the same period last year. The 2Q23 operating income of the corresponding company was 136 million yuan, down 5.36% from the previous month; the net profit returned to the mother was 10 million yuan, up 57.96% from the previous month.

Falling product prices are a drag on short-term performance. The revenue of the company's 1H23 polyetheramine / optical materials sector was 183 million yuan, respectively, and the YoY was-37.60% and 17.14%, respectively. The year-on-year decline in revenue was mainly related to the decline in the price of polyetheramine, the company's main product, compared with the same period in 22 years. 1H23's parent net profit declined, with a net interest rate of 5.65%, a year-on-year decline in 12.53pcts, mainly due to a decline in profitability caused by falling prices of major products.

Aliphatic amine plate product prices dropped significantly, optimistic about wind power and other areas to drive long-term demand growth. The main product of the company's aliphatic amine plate is polyetheramine, which is widely used in wind power blade manufacturing, shale gas exploitation, polyurethane elastomers, environmental protection coatings and other fields. Affected by the expected increase in polyetheramine production capacity in China, the price of aliphatic amine products of 1H23 Company has dropped significantly. According to the announcement of the company's semi-annual main operating data, the average price of aliphatic amine of 1H23 Company is 17652.20 yuan / ton, down 45.73% from the same period last year. In the long run, due to the rapid development of downstream shale oil and gas exploitation, wind power, environmental protection materials and other fields, the market demand of polyetheramine will continue to increase. According to CICC data, the global polyetheramine market has increased from 184000 tons in 2016 to 286000 tons in 2020, with a compound annual growth rate of 11.7 percent. It is expected that the global polyetheramine market will reach 486000 tons by 2025. From the point of view of the supply side, there are fewer enterprises with the ability to produce polyetheramine in the world. According to the reply of the company's audit inquiry letter of issuing shares to specific objects, there are fewer enterprises in the world with the ability to produce polyetheramine. The total domestic production capacity of polyetheramine is about 110000 tons. It is estimated that in the next 2-3 years, the actual production capacity of the global polyetheramine market will be about 400000 tons, and the global polyetheramine market will reach 486000 tons. There will still be a gap. In order to further expand market share, the company plans to build a project with an annual production capacity of 20,000 tons of polyetheramine, which can effectively alleviate the tight situation of the company's existing production capacity. Under the background of better demand in downstream applications such as wind power and shale gas production, we are optimistic about the expansion of the company's polyetheramine production capacity, which is expected to enhance the company's competitiveness in the polyetheramine market and facilitate future performance release.

The fall in product prices is a drag on short-term performance, and the rapid development of the new energy vehicle industry promotes the demand for upstream paint.

The main products of optical material plate are isoborneol acrylate and isobornyl methacrylate, which are widely used in the surface coating of all kinds of high-end cars. In the first half of 2023, the average price of optical materials was 39690.72 yuan per ton, down 28.87 percent from the same period last year. In the long run, as the most important application scene downstream of automobile surface coating, new energy vehicle will promote the steady growth of resin demand for optical grade polymer materials. Compared with traditional vehicles, new energy vehicles will tend to be more customized and personalized, and their requirements for paint functionality will be higher. According to the data of the China Association of Automobile Manufacturers, the output of new energy vehicles in China increased from 507000 to 7.058 million from 2016 to 2022, with a compound annual growth rate of 55.1 percent, and it is expected that the output of new energy vehicles in China will reach 9 million in 2023. We are optimistic that the sustainable development of the new energy vehicle industry will promote the steady growth of upstream paint demand, and it is expected that the revenue scale of the company's optical materials sector will continue to increase.

New projects to achieve domestic substitution, is expected to create a new growth curve of the company. Cycloolefin polymers (COC/COP), as thermoplastic engineering plastics with excellent properties, are widely used in optical lenses, display polarizers, pharmaceutical packaging and other fields. According to the reply of the company's audit inquiry letter of issuing shares to specific targets, China's COC/COP consumption in 2021 is about 21000 tons, which is currently the main global COC/COP consumer market. Due to the technical difficulty of the products, the source of COC/COP products in the Chinese market is mainly monopolized by Japanese enterprises such as Rui Weng, Poly Plastics, Mitsui Chemical and so on, and the large-scale domestic production has not yet been realized. The company's annual output of 10,000 tons of optical materials (cyclic olefin monomers and polymers) is expected to break the monopoly of Japanese enterprises and promote domestic substitution to meet the rapidly growing demand downstream. The main performance of the company's products has reached the level of imported products, and has carried out preliminary work such as product certification and testing with a number of well-known enterprises in downstream application fields and signed intentional cooperation agreements. Downstream customer products cover mobile phone optical lenses, optical components, high-end medical packaging materials (Xilin bottles) and other fields. We believe that the new project of the company can effectively break the technological monopoly of foreign enterprises and realize domestic substitution, and the commissioning of the project is expected to open up a second income growth curve for the company.

Investment suggestion: we estimate that Akoli's income from 2023 to 2025 will be RMB 618Universe 934Universe, with an increase of-13.35%, 51.21%, 81.93%, and net profit of 0.56, 1.72, 407 million, respectively, and a year-on-year increase of-53.49, 207.80, 136.46% and EPS of 0.64, 1.96 and 4.63, respectively. Combined with the company's closing price on September 25, the corresponding PE is 77-25-11 times. 2) We are optimistic that the sustainable development of the new energy vehicle industry will promote the steady growth of upstream paint demand, and it is expected that the revenue scale of the company's optical materials sector will continue to increase. 3) We believe that the company's new COC/COP project can effectively break the technology monopoly of foreign enterprises and realize domestic substitution, and the commissioning of the project is expected to open up a second income growth curve for the company.

Risk tips: raw material price fluctuation risk, demand lower than expected risk, project construction risk, technology iteration risk