Incident: The company disclosed its 2024 semi-annual report, achieving operating income of 1.388 billion yuan, an increase of 1.72% year on year; net profit to mother of 53.3213 million yuan, an increase of 43.46% year on year; after deducting non-net profit of 50.0646 million yuan, an increase of 106.72% year on year. Comments on this are as follows:

Revenue from the main business is improving, with high growth in Q2 after deducting non-performance. Benefiting from the continued growth in the polymer composite finishing materials business revenue, the increase in orders for high-margin products, and the year-on-year decrease in expenses, the company's performance in the first half of the year maintained high growth, and revenue/net profit to mother increased by 1.72/43.46% year on year, respectively. Among them, Q2 achieved operating income of 0.863 billion yuan, an increase of 4.12% year on year; net profit to mother of 41.0556 million yuan, an increase of 41.36% year on year; after deducting non-net profit of 39.9969 million yuan, an increase of 81.23% year on year. By business, in the first half of the year, the company sold 0.0049 million tons/0.0054 million tons/0.0232 million tons/0.002 million tons/1.6825 million sheets, respectively, with year-on-year changes of +12.71/+16.56/+35.62/-35.42/ -20.03%; revenue was 1.24/2.25/ 0.238/0.027/0.104 billion yuan, with year-on-year changes of +10.07/+12.21/+32.62/-34.75/ -19.84%, respectively.

Reducing costs and increasing efficiency was quite effective, and net interest rates increased year-on-year. In terms of price, the prices of most of the company's products declined in the first half of the year. Among them, the average price of home decoration finishing materials/automotive interior finishing materials/film/artificial leather/building fireproof panel materials changed by -2.34/ -3.73/-2.21/+1.03/ +0.24%, respectively. In terms of cost, the prices of the company's main raw materials rose and fell in the first half of the year. Among them, the average price of resin powder/plasticizer/surface agent/kraft paper/decorative paper/changed by -6.73/+6.68/-0.36/+3.28/ +1.22% year-on-year, respectively. Under the combined influence of the above factors, the company's gross margin/net margin in the first half of the year was 21.98/ 4.57%, respectively, with year-on-year changes of -0.42/+0.94pct. The company's net operating cash flow in the first half of the year was 0.109 billion yuan, a year-on-year decrease of 45.68%, mainly due to increased payment of supplier notes and employee remuneration due in the current period. The company's expenses rate for the first half of the year was 15.97%, a year-on-year decrease of 2.19 pcts. Among them, the sales/management (including R&D) /finance expense ratios were 6.40/8.72/0.86%, respectively, down 0.26/1.08/0.85pct year-on-year, respectively.

Acquired Southern Design Institute to further lay out the pan-home furnishing industry chain. In July 2024, the company acquired 51% of the shares of Southern Design Institute to reinforce the company's business capabilities in the field of architectural design and interior decoration design in the public decoration industry and further promote a closed loop in the industrial chain. Based on the two major businesses of architectural ceramics and polymer composite finishing materials, the company focuses on driving sales of products such as architectural ceramics, door and floor cabinets, and polymer composite finishing materials with the holding subsidiaries Yingpai Company, Tianhui Construction Technology, and Southern Design Institute's channel resources for home decoration and public decoration.

By building an industrial chain advantage of R&D and manufacturing of back-office finishing materials, an integrated value supply chain system, and front-office brand channels, the company has achieved a comprehensive industrial ecosystem where the breadth of businesses such as point-line surfaces is expanded and various business sectors are collaboratively empowered.

Investment advice: Q2 performance is improving, the pan-home strategy continues to advance, and the rating for increasing holdings is maintained. The company's net profit from 2024 to 2026 is expected to be 0.153, 0.194, and 0.233 billion yuan, respectively, up 26%, 27%, and 20% year-on-year, respectively. The corresponding PE price-earnings ratio is 12, 9, and 8 times, respectively. Downstream demand in the automotive decoration industry is improving; the company integrates holding subsidiaries such as Eagle Brand, Decorative Materials and Tianan Integration to create a complete platform to create business collaboration and create new growth points for performance.

Risk warning: raw material prices have risen or exceeded expectations; downstream demand for real estate may fall below expectations; prices of automotive interior finishing materials products have declined; industry competition has intensified; impairment meters mention merger and acquisition integration risks, etc.