An overview of the incident. The company released a half-year report. 24H1 achieved revenue of 0.323 billion yuan, +32% year over year; net profit to mother of 40.71 million yuan, +52% year over year, of which 24Q2 achieved revenue of 0.188 billion yuan, +24% year over month, and +39% month on month; net profit to mother of 28.63 million yuan, +21% year over month, +137% month-on-month. 24Q2 single quarter revenue reached a record high, second highest in history after 19Q3. The gross profit margin was 50.06%, +1.09pct year over year. We judge that the high increase in the company's performance is mainly due to (1) the recovery of the high-end consumer electronics market, the gradual penetration of new electronic products, and the continuous expansion of the company's downstream customers for ink and adhesives, and the implementation of order conversion; (2) the rise of domestic new energy vehicles, the trend of localization of downstream applications and upstream suppliers is obvious, the automobile market is gradually opening up, and the value of individual customers continues to increase.

As the 3C recovery progressed, the value of single customers increased after the company's products were systematized. 24H1 high-end consumer electronics achieved revenue of 0.27 billion yuan, +35.67% year over year, of which mobile phones and related accessories/notebook electronics/wearable devices/smart home appliances achieved revenue of 1.43/0.041/0.077/0.01 billion yuan, +32.85%/+6.64%/+77.32%/0.43% YoY. Downstream demand for high-end consumer electronics is expected to be further released: (1) Smartphones: According to IDC, 24Q2 global smartphone shipments have been growing for 4 consecutive quarters; 24Q2 smartphone shipments in China reached about 71.58 million units, +8.9% year over year; AI phones bring new volume, and global shipments of next-generation AI phones will reach 0.17 billion units in 2024, and the share of AI mobile phones in the Chinese market will also grow rapidly by 2027 The annual share will be over 50%. (2) Laptops: Since 23Q4, PC shipments have maintained positive growth for 3 consecutive quarters. According to Canalys, 24Q2 global PC market shipments were 62.8 million units, +3.4% year over year; (3) wearable devices: According to IDC, 24Q1 China's wearable device shipments were 33.67 million units, +36.2% year over year; of these, smartwatch 24Q1 shipped 9.1 million units, +54.1% year over year. We believe that demand for high-end consumer electronics is strong. Based on coatings, ink and adhesives are working simultaneously, and have built an integrated system. The value provided by individual customers will continue to increase, and the advantages of a complete system will continue to be highlighted, laying the foundation for growth in revenue and performance.

With the rise of domestic new energy sources, automotive coatings are expected to replicate the growth path of 3C coatings. 24H1 automotive coatings achieved a total revenue of 46.67 million yuan, +16.85% year-on-year. As one of China's seven strategic industries, the NEV industry is becoming more and more perfect, and the domestic NEV market has a strong voice. According to data released by the China Automobile Industry Association, 24H1 NEV production and sales in China completed a total of 4929 million vehicles and 4.944 million vehicles, +30.1% and +32% over the same period, with a market share of 35.2%. Using CMF as an innovative solution as a starting point, the company continues to drive the market in the field of interior and exterior coatings, successfully participating in many key interior and exterior projects for customers such as BYD, Geely, Xiaomi, and Ideal. It has also obtained new cooperative development opportunities for light-emitting bumpers, and paint applications have been effectively promoted; the company has developed a new product line, completed sintered ink solutions (soon to enter mass production), improve technical application problems for automotive lighting coating products (a leading domestic car company has begun to introduce and use), etc. We believe that the rise of domestic NEV manufacturers has a strong driving effect in the domestic upstream and downstream sectors. It is an excellent time for domestic upstream suppliers to grab automotive coatings. The trend of localized substitution for medium- to long-term upstream suppliers is clear; the company is deeply involved in automotive coatings, and as customer stickiness gets higher and higher, the company is expected to replicate the 3C paint growth path in automotive coatings, and the second growth is expected to be unleashed.

The rise of new business formats is accelerating, and special equipment coatings are welcoming new opportunities. (1) Coatings also have a wide range of application scenarios in aerospace and other special equipment. They can provide effective protection for aircraft and spacecraft surfaces, internal operating tables, and precision instruments, etc., and can also meet their special functional requirements. Special equipment such as core products such as eVTOL, drones, etc.; for eVTOL, an aircraft type that is oriented to future urban air traffic scenarios and is more in line with future urban integrated three-dimensional transportation systems, according to Precedence Research, the eVTOL market is expected to grow to 15.82 billion US dollars in 2025, and the incremental market demand is considerable. (2) Coatings can also be applied to core components such as NEV batteries and motors. It is also expected to benefit from the development of the NEV industry in the future. The company announced the successful implementation of the world's first battery insulated UV inkjet printing model project first launched in China. Based on the model engineering effect, digital coating system solutions with higher material safety performance and higher cost performance are gradually being recognized by the downstream market. Many domestic and foreign new energy power battery manufacturers are having in-depth exchanges with the company, and the project results have begun to be applied on a commercial scale.

Investment advice

We maintain our profit forecast. We expect that in 2024-2026, the company will achieve revenue of 0.785/1.021/1.312 billion yuan, a year-on-year growth rate of 33.1%/30.0%/28.6%, and net profit to mother of 0.117/0.152/0.204 billion yuan, a year-on-year growth rate of 44.5%/30.1%/33.7%, corresponding to EPS 1.05/1.36/1.82 yuan, corresponding to a closing price of 36.53 yuan on August 16 /20.03x PE Maintain a “buy” rating.

Risk warning

Production capacity release falls short of expectations, new product development progress falls short of expectations; downstream demand falls short of expectations; costs are higher than expected; systemic risks.