Event: On July 9, the company released its semi-annual performance forecast for 2023. Among them, net profit from the mother was realized in 2023 (2 to 220 million yuan, +8.33% ~ 19.16%), deducting non-net profit (1.75 to 195 million yuan, +2.00% ~ 13.66%).

Performance is affected by the phased pace of delivery. It is expected that the steady growth trend will resume in the second half of the year. In the first half of 2023, the company will organize production schedules in a balanced manner and make every effort to produce and prepare goods. Among them, Q1 achieved net profit of 148 million yuan, +63.68% year-on-year, and Q2 achieved net profit of 0.52 to 72 million, -44.68% to -23.40%, and -64.86% to -51.35% month-on-month, mainly due to normal Q1 delivery, gradual fluctuations in the quarterly delivery pace of Q2 customers, and a slowdown in product delivery progress over the first quarter. After the company confirmed with the customer, there was no change in total supply and demand throughout the year. The company will continue to organize production and build capacity according to the original plan. It is expected that the normal pace of delivery will resume in the second half of the year and return to a steady growth path.

Increase and accelerate the supply of production capacity and consolidate the foundation for performance growth. The company's current production capacity can be divided into a 100-ton line, a kiloton line and a three-phase project. According to the company's announcement, the 100-ton line is 120 tons and the kiloton line is 330 tons, making every effort to guarantee mature products; the third phase of the project has planned three production lines of 200 tons/year (6K) each. At present, the test run of the first and second production lines has been completed, and the production line will actively prepare new products after passing verification and assessment. The company has sufficient production capacity reserves. While resolving the contradiction between supply and demand, it also lays a solid foundation for the company's performance growth. Furthermore, ZT8 carbon fiber has passed the review and has a wide range of application scenarios in the aviation and aerospace fields, so future batch applications can be expected. As the company continues to increase the depth and breadth of market development, it is expected to create more new growth points for the company.

The implementation of equity incentives demonstrates confidence in long-term growth. On October 13, the company announced an equity incentive plan (draft) to grant 1,092 million restricted shares to incentive targets. Among them, the initial incentive plan is to award 873 million shares. The incentive target is 13 people, including the company's senior management, middle management, and business executives, and the grant price is 23.36 yuan/share.

The equity incentive plan set two conditions of target value and trigger value to assess the company's performance. Among them, with reference to the target conditions, the company's net profit from 2022-2025 was 4.33/7.04/9.06/1,147 billion yuan, up 115%/63%/29%/27%, with a compound growth rate of 38.36%; referring to the trigger conditions, the company's net profit for 2022-2025 was 4.13/6.74/8.65/1,087 billion yuan, up 105%/63%/28%/ 26%, with a compound growth rate of 38.07%. This equity incentive is expected to have a long-term incentive effect on the company's performance growth, demonstrating the company's confidence in the sustainability of medium to long-term performance.

Investment suggestion: The company is a leading supplier of high-performance carbon fiber in China. With the accelerated release of demand in the downstream aerospace sector, the company's carbon fiber products are expected to benefit the core. Furthermore, the company actively invests and expands production and lays out the aerospace sector. As fund-raising projects reach production in an orderly manner, the company's future performance is expected to grow further. It is estimated that the company's net profit for 2023-2025 will be 7.40, 9.3 and 1.14 billion yuan respectively, giving 23 times PE, corresponding to the six-month target price of 54, maintaining the “buy-A” rating.

Risk warning: the commissioning of fund-raising projects falls short of expectations; customer development progress falls short of expectations; risk of falling product prices; risk of relative concentration of customers.