Brief performance review

On July 26, the company released its 2024 mid-year report. In the first half of the year, it achieved operating income of 3.31 billion yuan, an increase of 3.3%; realized net profit due to mother of 0.141 billion yuan, a decrease of 56.8%; and realized net profit deducted from non-mother of 0.112 billion yuan, an increase of 60.7%. Among them, Q2 achieved operating income of 1.83 billion yuan, an increase of 11.9%, an increase of 22.8%, a net profit of 0.089 billion yuan, a decrease of 50.1% and an increase of 73.7%. Net profit without return to mother was 1.06 yuan, an increase of 164.2%, and an increase of 1171.1%. Non-recurring gains and losses are mainly government grants.

Management analysis

Product structure optimization, self-supply of EVA raw materials to reduce costs, and Q2 profitability improvement. Q2's gross sales margin improved significantly. Compared with the Q1 repair of 1.1 PCT to 17.38% month-on-month, we expect to further increase the proportion of high gross margin products such as EVA and special surfactants; at the same time, promoting cost reduction and efficiency. The 0.09 million tons/year VA unit was put into operation in January 2024, making the existing EVA device completely self-supplied with raw materials, which is expected to contribute to cost reduction.

New construction projects have been put into operation one after another, projects under construction have progressed smoothly, and new material platforms have been built to support continued growth in performance. In the first half of the year, many of the company's newly built installations were successfully put into operation, and the 0.09 million ton/year VA unit remained stable after being put into operation in January, achieving full production and sales on the basis of ensuring complete self-sufficiency of the company's EVA equipment; the 0.02 million ton/year UHMWPE unit was put into operation in March 2024. It has produced 5 grades of products such as high-end diaphragm materials and fiber materials, which are being tested by customers, and sales will gradually increase; 0.01 million tons/year electronic-grade high-purity special gas devices were successfully launched in May 2024 Drive and simultaneously advance customer verification. In addition, the company is actively promoting the construction of projects under construction: in terms of new energy materials, 0.2 million tons/year EVA and 0.1 million tons/year PoE devices are scheduled to be put into operation in 2025, which is expected to further enrich the company's layout in the field of photovoltaic materials and enhance its core competitive advantage; the 4000 tons/year lithium battery additive VC device will be completed and put into operation within 2024, and the products have technical advantages and industrial chain advantages. In terms of degradable materials, the 0.04 million tons/year PLA project has entered the trial production stage, and the 0.05 million tons/year PPC project is scheduled to be put into operation in 2025. It is expected to fully collaborate with existing production bases and industrial chains to achieve recycling and comprehensive utilization of resources. As new installations are put into operation one after another, the company is expected to comprehensively enhance its competitiveness in the fields of new energy materials, degradable materials, etc., and support continued growth in performance.

Profit Forecasts, Valuations, and Ratings

According to our latest forecast on the supply, demand and price of EVA and POE products, the company's 2024-2026 profit forecast was adjusted to 4.1 (-15%), 5.1 (-14%), and 7.6 (-24%) billion yuan. Considering the growth brought about by the company's new materials platform, the “buy” rating was maintained.

Risk warning

Product prices fell short of expectations; production expansion project construction and new product development fell short of expectations.