Core views

The company released a performance forecast for the first half of 2024. In the first half of the year, the company's revenue is expected to increase 26-31% year on year; after deducting the impact of exchange, net profit due to the first half of the year is expected to increase 26-30% year on year; in the context of demand pressure, it is not easy to maintain this strong endogenous growth. We believe that in addition to the reasons of stable stock business and high growth in overseas business, it also highlights the company's technical focus and excellent management over many years. In the long run, the company's adsorption and separation technology has a high threshold, a wide range of applications, a large global market, and there is still a lot of room for expansion of the company's business.

occurrences

The company released a performance forecast for the first half of 2024: it is expected to achieve revenue of 1.269-1.32 billion yuan in the first half of the year, an increase of 26-31% over the previous year; achieve net profit to mother of 0.394-0.41 billion yuan, an increase of 14-18% over the previous year. Among them, net profit to mother increased by about 26-30% year-on-year in the first half of the year after deducting the impact of exchange.

Brief review

Maintaining strong endogenous growth was not easy, highlighting the company's excellent quality and steady performance. Due to sharp fluctuations in the 2023 exchange rate level, the company confirmed an exchange income of 37.61 million yuan in the first half of 2023. Therefore, we mainly focus on endogenous performance growth after deducting exchange gains.

In fact, against the backdrop of PPI being negative for many months and the overall production and operation of the manufacturing industry under pressure, it is not easy for new materials companies to maintain a high level of endogenous growth. Over the past period of time, we have seen that many new materials companies with very leading positions in the industry have also experienced significant fluctuations in their performance compared to the past. We think this is closely related to the industry attributes of new materials — the reason why new materials are different from traditional materials is that they serve more advanced, more precise, and higher added value, and their value is often higher than traditional materials. Therefore, now that the downstream industry is in a phased predicament, enterprises are often satisfied with traditional materials and no longer pursue the alternative effects of new materials, and the logic of increasing the penetration rate of emerging materials is likely to weaken. In addition, industry segments with relatively low technical thresholds in China are often prone to “internalization” due to excessive capital expenditure. Overall, it is possible that only new materials companies with deep technology accumulation and efficient management capabilities can have a strong ability to resist countercyclical cycles.

In this interim report, we see that the company is still maintaining a relatively high endogenous growth rate. The reason for this is that in addition to ① a significant portion of the company's business (especially incremental business) is closely related to overseas demand; ② the company's business model determines the relatively stable business scale of existing customers, the core is also the company's high technical focus and solid and effective internal management since its establishment. Continuous rapid growth at the performance level is unattainable, but adhering to a long-term approach may be the foundation for a stable and far-reaching enterprise.

By sector, the company's life sciences, salt lake lithium extraction, and water treatment business sectors still have good prospects (1) Life science: various consumables have good growth potential, solid phase synthesis carriers or new growth poles. Adsorption and separation materials are key consumables in the field of biopharmaceutical purification, and the global market size of macromolecule purification alone is about tens of billions of yuan per year. Other applications are also found in chemical synthesis, biological fermentation, natural extraction, and IVD. We estimate that the market space for adsorbents in the life sciences sector is comparable to the sum of adsorbents in other fields.

The company is involved in many product categories in the life sciences sector. Although the current business volume and industry recognition are lower than those of domestic first-line peers, on the one hand, the company has accumulated technology for many years, and on the other hand, the multi-product layout makes it easy for the company to achieve performance that exceeds expectations, especially in some rapidly expanding downstream sectors.

For example, in terms of solid phase peptide synthesis carriers, the company is one of the mainstream and established suppliers of this consumables in the world. Currently, with the explosion of GLP-1RA around the world, demand for this consumables market has increased dramatically. Furthermore, in the next few years, there will also be dozens of GLP-1 targeted innovative drugs/generic drugs that will soon be marketed in China, which is expected to drive another rapid growth in market demand.

In terms of chromatographic fillers/chromatography media, after the establishment of the Suzhou subsidiary in 2021, the company made rapid progress in this segment. In 2022, the company completed the construction of a new 5000L chromatography medium production workshop, and was designed and constructed according to GMP specifications. The standards were greatly improved compared to the previous first-generation production line. Currently, due to the declining trend in downstream innovative drugs, the localization process in this industry has been slowed down to a certain extent. Still, this is a market with plenty of room, plenty of room for domestic alternatives, and high enough product barriers and profit margins.

(2) Lithium extraction in Salt Lake: There are still orders and new developments, which confirm that under the decline in lithium prices, the adsorption method still has a good industrial logic; although lithium prices have clearly declined from a high level, the company still has a good industrial logic for adsorption lithium extraction. The following facts should be noted: ①. The recent domestic salt lake lithium reserves (minus LCE) are measured in tens of millions of tons, and there is no storage bottleneck; ②. After years of industrialization and promotion, adsorption lithium extraction has gradually been proven to be suitable for lithium extraction in various types of salt lakes; ③, the operating cost of adsorption lithium extraction is low. For example, according to the Salt Lake Stock Annual Report, its lithium carbonate production cost is only about 3-0.04 million/ton. In summary, it is easy to deduce that even if the price of lithium remains at 0.07-0.08 million yuan/ton, there is still good room for industrialization and promotion of lithium by adsorption, which can be described as booming.

(3) Other sectors: New applications continue to emerge, and the growth potential is also impressive downstream of the company. We believe that in addition to the above sectors, the company also has good growth potential in other sectors. Even without hot fields such as salt lake lithium extraction and life science, it is a high-quality enterprise with heavy snow. The reasons include: (1) adsorption and separation is a platform-based technology, that is, regardless of application fields, the underlying technology is largely similar, and the company's technical capabilities are therefore highly mobile and reusable; (2) Adsorption separation technology is relatively highly mobile and reusable. purification technology, With the continuous development of the downstream industry and the gradual increase in purification and debris removal standards, the demand for adsorption and separation technology will only increase. For example, lithium extraction in salt lake is a new field of demand that has emerged in recent years; (3) The company's actual controllers are from technology. Since its establishment in 2001, it has always been based on this technology and has experienced 20 years of development. It has now become the leading solution leader in adsorption and separation materials in the country, and has accumulated deep accumulation in underlying technology; (4) Along with the rapid development of the company's business and continuous improvement in customer recognition, the cash flow situation has improved dramatically, and the cash flow situation has improved dramatically. Also Stronger and stronger.

Profit forecasting and valuation

We forecast net profit for 2024, 2025, and 2026 to be 0.921, 1.128, and 1.331 billion yuan respectively, corresponding to PE of 23X, 18X, and 16X. We continue to recommend and maintain the “buy” rating.

Risk warning

(1) The life science sector is affected by the decline in the prosperity of the innovative drug CXO industry chain: Due to various reasons such as the investment and financing environment, the innovative drug industry chain has recently had many layoffs and reduced R&D pipelines, etc., while the company's main products in the life science sector are consumables used in biopharmaceuticals/chemical pharmaceuticals, and its downstream demand may be negatively affected.

(2) The progress of the Salt Lake lithium extraction project falls short of expectations: In addition to technology, factors limiting the expansion of lithium production in Salt Lake also include capital (that is, whether the resource party has sufficient funds to support the expansion of production), resources (whether there are enough, high-quality salt lake resources), and qualifications (whether the resource party has obtained EIA and the qualifications necessary for project construction). Historically, these factors often make the Salt Lake lithium extraction project less progress than expected.

(3) Risk of technology diffusion: We believe that the core technical barriers of the industry are reflected in accumulation of skills. If the company's main technical personnel leave, it may lead to the outflow of the company's core technology and weaken the company's technological competitiveness relative to the same industry.