Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 5.66 billion yuan, and realized net profit of 0.187 billion yuan compared to the previous year; of these, Q2 achieved operating income of 2.94 billion yuan in a single quarter, -7.7% YoY and +8.0% month-on-month, achieving net profit to mother 0.033 billion yuan, +58.8% YoY and -78.5% month-on-month.

Comment:

The increase in the sales price of clean energy products combined with the decline in raw material prices. 24H1's performance surged year on year: the average market prices of ethylene, propylene, and n-butanol for some products in the clean energy sector of 24H1 were 961 US dollars/ton, 6,887 yuan/ton, and 8,374 yuan/ton, respectively, +6.9%, -2.7%, and +10.6%, respectively. In terms of raw materials and power costs, the prices of 24H1 anthracite (7000K) and thermal coal (5,500K) were 995 yuan/ton and 722 yuan/ton respectively, -30% and -1% year-on-year respectively. In the first half of 2024, the sales price of the company's clean energy products such as olefins increased, and the purchase price of superimposed raw materials fell, which led to a sharp year-on-year increase in the company's 24H1 performance.

The LCD materials and clean energy sector continues to gain strength, and its main business is expanding steadily: On March 24, 2024, the company signed an “Intellectual Property Transfer Agreement” with DIC Co., Ltd. through its holding subsidiary Shijiazhuang Chengzhi Yonghua Display Materials Co., Ltd., and purchased 1183 patent assets at a price of RMB 0.24 billion, which is expected to form a leading patent layout, which is expected to enhance the competitiveness of the company's LCD materials sector. On May 31, 2024, the company held the third interim meeting of the 8th board of directors to deliberate and pass the proposal for the subsidiary Nanjing Chengzhi to participate in the auction of 100% of Blue Star Dongda's shares to obtain 0.1542 million square meters of land use rights in the Nanjing Jiangbei New Area New Material Science and Technology Park, further increasing the land area used in the clean energy business sector. The company's clean energy business is expected to continue to grow.

The POE process package was successfully signed, and the POE project progressed steadily: On August 31, 2022, the company issued an announcement that it plans to invest in the construction of the POE project. The scope of construction of the project includes 2×0.1 million tons/year PoE installations and auxiliary production facilities and warehouse areas. The total investment is estimated to be about 4 billion yuan, and the construction period is 3 years. As of 24H1, the POE project has completed the process package development and review meeting; the ultra-high molecular weight polyethylene project has completed the EIA, the general contractor of the project has been determined, the design work is in progress, and other work is pending approval of the planning license. The company's POE project is progressing steadily, and it continues to lay out the field of high-end chemical new materials, which is expected to open up room for growth.

Profit forecast, valuation and rating: Downstream demand is recovering weakly, and the company's profitability recovery is less than our previous expectations. Therefore, we lowered the company's 2024-2025 profit forecast and added a 2026 profit forecast. We expect the company's net profit to be 2.88 (41% reduction) /3.44 (38% reduction) /0.404 billion yuan respectively, equivalent to EPS of 0.24/0.28/0.33 yuan/share. The company adheres to the “two wings of one” strategy and accelerates the construction of new production capacity. We continue Optimistic about the company's future development and maintaining the company's “buy” rating.

Risk warning: Downstream demand falls short of expectations, risk of technology iteration, and large fluctuations in product prices.