Incident: The company recently released its 2024 semi-annual report. During the period, it achieved revenue of 3.313 billion yuan, +3.31% year-on-year, realized net profit of 0.141 billion yuan, or -56.82% year-on-year, after deducting non-return net profit of 0.111 billion yuan, and +60.73% year-on-year. Among them, 2024Q2 achieved revenue of 1.826 billion yuan, an increase of 22.80% over Q1, a net profit of 89.3197 million yuan, an increase of 73.65% over Q1, net profit of 0.11 billion yuan after deducting non-return to mother net profit of 0.11 billion yuan, and an increase of 1771% over Q1.

Product structure optimization and effective cost control, improving the company's main business profit. Prices of the company's main products declined due to weak macroeconomic recovery and pressure on downstream market demand. The company's main products include ethylene vinyl acetate copolymer (EVA), polypropylene special materials, and ethylene oxide derivatives. 2024H1 accounted for 24.03%, 25.29%, and 11.71% of revenue respectively, totaling 61.03%. Among them, EVA achieved revenue of 0.796 billion yuan, a year-on-year decrease of 22.93%, gross margin of 36.25%, a year-on-year decrease of 6.68%. With the 0.09 million tons/year VA unit put into operation in January 2024, the company's EVA products can achieve complete self-supply of raw materials, further reduce costs, and increase the output of EVA photovoltaic film materials, wire and cable materials, and high-end shoe materials. The product structure was optimized, and profitability highlighted resilience. According to data from the National Energy Administration, from January to June 2024, China added 102.48 GW of PV installed capacity, up 30.7% from the same period in 2023. Downstream demand continued to grow, compounded by the increase in demand from traditional “golden nine silver ten” wire and cable manufacturers, the price of EVA products may recover steadily in the second half of 2024.

Continued focus on the direction of new materials, the new installation was successfully put into operation, and the projects under construction progressed in an orderly manner.

During the reporting period, the company's new plant was successfully put into operation: the 0.09 million ton/year VA device was put into operation in January 2024, 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, and has produced 5 brands of products such as high-end diaphragm materials and fiber materials, which are undergoing customer trials and gradual sales volume; 0.01 million tons/year electronic grade high-purity special gas device was successfully put into operation in May 2024. Customer factory inspections are also being promoted simultaneously; the 0.04 million tons/year PLA project has entered the trial production stage.

The projects under construction are progressing in an orderly manner according to the plan: Huayu Tongfang's 4000 tons/year lithium battery additive VC plant has entered the installation stage; the 0.05 million tons/year PPC project is expected to be fully completed and put into operation in 2025; 0.2 million tons/year of tubular EVA production and the first 0.1 million tons/year PoE project are expected to be completed and put into operation in 2025. Among them, the POE device has already passed the safety assessment, EIA and energy assessment, and project construction is about to begin. At that time, the company will also have two mainstream photovoltaic film products, EVA and POE, to continue to enrich its layout in the field of photovoltaic materials and enhance its core competitive advantage.

Investment advice: Based on current product prices, future industry and company production capacity, we expect the company's net profit to be 0.408/0.498/0.721 billion yuan in 2024/2025/2026, the corresponding EPS is 0.31/0.37/0.54 yuan, and the corresponding current stock price PE is 43.1/35.3/24.4 times. Based on the growth of the company's new materials business, we maintain a “buy” rating.

Risk warning: falling product prices, falling short of expectations in project commissioning, risk of industry overcapacity, downstream demand falling short of expectations, etc.