Event: on August 28, the company released its semi-annual report of 2023. The operating income in the first half of 2023 was 750 million yuan, down 17.3% from the same period last year. The net profit returned to the home was 157 million yuan, down 30.36% from the same period last year. The corresponding gross profit margin was 31.22%, down 6.38 pct from the same period last year. The corresponding net sales profit rate was 20.91%, down 3.92pct from the same period last year.

2023Q2 annular repair, cellulose ether demand improvement, plant capsule export recovery. 2023H1 achieved an operating income of 750 million yuan, down 17.3% from the same period last year, and a net profit of 157 million yuan, down 30.36% from the same period last year.

In terms of sectors, the operating income of cellulose ether was 552 million yuan, down 1.2% from the same period last year, and the corresponding gross profit margin was 29.21%, down 4.01 pct from the same period last year; the business income of plant capsules was 100 million yuan, down 44.41% from the same period last year, and the gross profit margin was 53.16%, down 9.84pct from the same period last year. 2023Q2 achieved operating income of 375 million yuan, down 27.19% from the same period last year, and remained stable month-on-month; the net profit from home was 84 million yuan, down 34.8% from the same period last year, and up 15.07% from the previous year. At present, orders for cellulose ether are gradually increasing, and the export of plant capsules continues to increase.

The release of new capacity is expected to contribute to the increase in performance. With the construction of 41000 tons of cellulose ether and 5 billion plant capsules have been completed and put into production, the future production capacity of cellulose ether and plant capsules is expected to reach 75000 tons and 35 billion respectively.

The completed Heda Polymer Phase I 30,000 t / a cellulose ether project includes two production lines: a cellulose mixed ether production line, alternately producing 10,000 tons of hydroxypropyl methyl cellulose (HPMC) and 10,000 tons of hydroxyethyl methyl cellulose (HEMC), and a 10,000 ton hydroxypropyl methyl cellulose (HPMC) production line, with new production capacity being gradually released.

In the two-stage acquisition, Fuzhi is to make up for the shortcomings of HEC products. In August 2023, in order to improve the company's cellulose ether product line and improve the matching capacity of cellulose ether products, the company acquired 100% equity of Shandong Zhongfuzhi New Materials Co., Ltd. in two stages with free capital. Zhongfuzhi is the main product hydroxyethyl cellulose (HEC), can be widely used in daily chemicals, latex coatings, polyvinyl chloride, ceramics and agricultural production and other fields. The second phase of hydroxyethyl cellulose project started by Zhongfuzhi in 2022 has been completed. After reaching production, the HEC production capacity will reach 10000 tons / year, ranking in the forefront of the country. In 2023H1, Fuzhi realized operating income of 63 million yuan and net profit of 14 million yuan. In September 2023, Zhongfu was included in the scope of the consolidated statement.

Investment suggestion: the company's earnings per share from 2023 to 2025 are expected to be 1.09,1.31,1.51 yuan respectively, and the corresponding share price PE is 16,13,11 times respectively. The company is the leader of domestic cellulose ether and plant capsules, considering the gradual expansion of new production capacity and the continuous recovery of demand in the future, it is expected to ensure long-term performance growth and maintain 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.