Incidents:

On August 8, 2024, Yanggu Huatai released its 2024 semi-annual report: in the first half of 2024, the company achieved operating income of 1.687 billion yuan, a year-on-year increase of 1.38%; achieved net profit of 0.139 billion yuan, a year-on-year decrease of 33.71%; realized net profit without deducted back to mother 0.124 billion yuan, a decrease of 38.24% year on year; net cash flow from operating activities was 0.12 billion yuan, a year-on-year decrease of 0.089 billion yuan. The gross profit margin on sales was 19.70%, down 6.48pct year on year, and the net profit margin was 8.23%, down 4.35pct year on year.

In the Q2 quarter of 2024, the company achieved operating income of 0.853 billion yuan, -0.05% year on month, +2.28% month on month; realized net profit of 0.058 billion yuan, -52.37% year on year, -29.12% month on month; net profit after deducting non-return to mother 0.054 billion yuan, -53.58% year on year, -23.99% month on month; net cash flow from operating activities was 0.036 billion yuan, down 0.048 billion yuan year on month, month on month decrease 0.048 billion yuan. Gross sales margin was 18.62%, down 8.46pct year on year and 2.18pct month-on-month. Net sales margin was 6.76%, down 7.40 pcts year on year and 2.97 pct month on month.

Investment highlights:

Revenue increased year-on-year in the first half of 2024, and the gross margin of multifunctional rubber additives increased year-on-year

In the first half of 2024, Yanggu Huatai achieved operating income of 1.687 billion yuan, a year-on-year increase of 1.38%; net profit to mother was 0.139 billion yuan, a year-on-year decrease of 33.71%. The main reason for the year-on-year increase in the company's operating income is the year-on-year increase in product sales, and the main reasons for the year-on-year decline in net profit are: 1. Prices of some of the company's products fell year on year; 2. Exchange revenue decreased year on year due to exchange rate fluctuations; 3. 2024Q2 shipping charges increased a lot year over year, resulting in an increase in operating costs.

By product, the revenue of high-performance rubber additives in the first half of 2024 was 1.195 billion yuan, +15.09% year on year, gross margin was 14.35%, -14.43 pct year on year.

The revenue of multifunctional rubber additives was 0.492 billion yuan, -21.23% year-on-year, and gross margin was 32.68%, +10.85pct year-on-year.

2024Q2 Net profit decreased month-on-month and management expenses increased month-on-month

2024Q2 achieved net profit of 0.058 billion yuan, a decrease of 0.023 billion yuan, and 2024Q2 achieved gross profit of 0.159 billion yuan, a decrease of 0.015 billion yuan over the previous month. In terms of expenses, 2024Q2 sales expenses were 21.98 million yuan, an increase of 0.9 million yuan over the previous month; management expenses were 42.22 million yuan, an increase of 6.26 million yuan over the previous month; R&D expenses were 18.9 million yuan Million yuan, an increase of 6.16 million yuan over the previous month; financial expenses were 2.15 million yuan, a decrease of 4.35 million yuan over the previous month. 2024Q2's credit impairment loss was $3.02 million, a decrease of $1.22 million over the previous month.

A leader in the rubber additives industry, the repurchase of shares shows that the company's management confidence accounts for more than 60% of the global market share of the anti-scorching agent CTP; the company is currently the third company to master continuous insoluble sulfur industrialization technology after US Fullex and Japan's Shikoku Chemical Industry Co., Ltd., and its product competitiveness has been fully recognized by the market; the “solvent extraction method” adopted by the company's accelerator M has drastically reduced “three waste” emissions.

On August 8, the company also announced the 2024 repurchase plan. The proposed repurchase is not less than RMB 50 million (inclusive) and not more than RMB 100 million (inclusive). The repurchase of shares will be used to cancel and reduce the registered capital. The move shows confidence in the company's operations and management.

Profit forecasts and investment ratings take into account changes in product prices, and we adjust performance expectations. We expect the company's 2024/2025/2026 operating income to be 3.572, 5.002, and 5.609 billion yuan, respectively, and net profit to mother of 0.317, 0.424, and 0.529 billion yuan, corresponding to EPS of 0.77, 1.04, and 1.29 yuan, corresponding PE is 9, 7, and 6 times, taking into account the company's R&D advantages and leading position in the anti-scorching agent segment to maintain the “buy” rating.

Risks indicate falling product prices; risk of rising raw material prices; environmental protection and production safety risks; competition in the same industry exacerbates risks; risk of weakening downstream demand.