1H24 expects profit to increase 14.0-18.5% year-on-year

Lanxiao Technology released the 1H24 performance forecast. The company expects to achieve operating income of 1.27-1.32 billion yuan, up 26-31% year on year; net profit to mother 0.394-0.41 billion yuan, up 14.0-18.5% year on year, in line with market expectations; after deducting non-net profit of 0.383-0.398 billion yuan, up 13.5-18.1% year on year. The company expects 1H24 exchange earnings to be about 4.04 million yuan, compared to 37.61 million yuan in the same period last year; excluding the impact of exchange earnings, the company expects 1H24 net profit to mother to increase by about 26%-30% over the same period last year. 1H24's orders for life sciences and lithium extraction continued to expand, and the increase in the sales scale of products in the ultrapure water sector drove rapid revenue and profit growth.

According to our performance forecast, the company achieved operating income of 0.64-0.69 billion yuan in 2Q24, an increase of 26-36% over the previous year; net profit to mother was 0.23-0.24 billion yuan, up 6-14% year on year. The profit growth rate was slower than revenue, mainly due to confirmed higher exchange earnings in 2Q23.

Key points of interest

The subsidiary Pucheng Lanxiao plans to invest no more than 0.6 billion yuan to build a high-end materials manufacturing industrial park. The company announced that it plans to purchase 132 acres of land use rights in the Weibei Coal Chemical Industrial Park in Pucheng High-tech Industrial Development Zone and build Pucheng Lanxiao High-end Material Manufacturing Industrial Park. The total investment is expected to be no more than 0.6 billion yuan to build 0.02 million tons of adsorption and separation materials production and public auxiliary supporting facilities. The estimated construction period is 18-36 months. We believe the project is expected to help the company increase high-quality production capacity, meet the demand for expansion in the high-end application market, help the company continue to lay out the adsorption and separation materials industry in depth, and help it grow in the long term.

Downstream is blooming more, and I am optimistic that the company's performance will continue to grow rapidly. 1) The life science sector has outstanding first-mover advantages and technical advantages: Driven by the continued rapid growth in Eli Lilly's telpopeptide sales, we believe that sales of solid phase synthesis carriers may maintain a high growth rate. At the same time, nucleic acid drug synthesis materials, adsorbent materials for Western medicine, and immobilized enzyme carriers will continue to promote commercial application, which is expected to drive the sector to maintain rapid growth in the medium to long term. 2) In the field of ultrapure water, the company's self-developed jet homogenization technology has broken the monopoly of a few foreign companies. We believe it is expected to achieve industrial breakthroughs in the field of electronic grade and nuclear grade ultrapure water. 3) In terms of the utilization of metal resources, the company continues to promote the industrialization of lithium extraction in salt lakes, and is optimistic that overseas lithium extraction customers will achieve breakthroughs to help the sector continue to grow.

Profit forecasting and valuation

We keep our profit forecast for 2024/25 unchanged. Currently, the company's stock price corresponds to a price-earnings ratio of 21.6/16.6x 2024/25. Due to the decline in the valuation center of the industry, we lowered our target price by 11% to 58 yuan, corresponding to 41% room for growth and the 2024/25 price-earnings ratio of 30.6/23.5x, to maintain the industry's outperforming rating.

risks

Competition in the industry intensified, and downstream demand growth fell short of expectations.