Incident: The company disclosed its 2024 semi-annual report. In the first half of the year, it achieved operating income of 0.561 billion yuan, an increase of 21.41% year on year; net profit to mother of 51.285 million yuan, an increase of 27.70% year on year; after deducting non-net profit of 46.1615 million yuan, an increase of 46.51% year on year. Comments on this are as follows:

Pharmaceutical glass production capacity released+heat-resistant glass recovered, and revenue scale increased steadily. In Q2 2024, the company's operating revenue/net profit to mother increased by 23.69/ 53.61% year-on-year to 0.294/0.026 billion yuan, respectively. 1) Medicinal glass. In April 2024, the company's borosilicate molded injection bottles successfully activated the “A” status, indicating that the borosilicate glass molded injection bottles produced by the company can be officially sold in batches; on May 28, the company's second borosilicate molded bottle kiln was ignited. After the project is delivered, it can achieve an annual output of more than 11,000 tons of borosilicate pharmaceutical molded bottles. The company's medicinal glass business achieved revenue of 0.255 billion yuan in the first half of the year, an increase of 20.91% over the previous year.

2) Heat-resistant glass. The company improves production efficiency, enriches product categories, and focuses on developing high value-added products.

As overseas demand recovered and raw material costs declined, the heat-resistant glass business recovered and grew. In the first half of the year, the company's heat-resistant glass revenue was 0.285 billion yuan (including electric light source glass), an increase of 17.62% over the previous year.

The decline in raw fuel prices has boosted the profit center, and the cost rate has increased. In the first half of the year, the company's gross margin/net margin was 20.28/ 9.15% respectively, up 3.42/0.46pct year-on-year respectively. The main reason is that procurement costs for major raw materials such as borax, boric acid, and borosilicate medicinal glass tubes used by the company, as well as energy prices such as electricity and natural gas prices have all declined to varying degrees. The company's net operating cash flow in the first half of the year was 24.0587 million yuan, a year-on-year decrease of 41.69%, mainly due to a relative decrease in payment return funds due to an increase in accounts receivable and notes receivable for the current period. The net cash flow from investment activities was $0.272 billion, an increase of 471.79% over the previous year, mainly due to the impact of financial redemption funds in the current period. The company's expense ratio for the first half of the year was 10.68%, an increase of 1.87 pct over the previous year. Among them, the sales/management (including R&D) /finance expense ratios were 3.91/5.20/ 1.57%, with year-on-year changes of +0.04/-0.48/+2.30pct, respectively. The increase in financial expenses is clearly mainly due to interest on convertible bonds.

Launch a stock incentive plan to boost confidence in development. On August 15, the company announced the 2024 Restricted Stock Incentive Plan (draft). The number of restricted shares to be granted to incentive recipients is 3.525 million shares, accounting for approximately 1.52% of the company's total share capital at the time of announcement. The grant price of restricted shares under this plan is 6.88 yuan/share, and the total number of incentive recipients is 35 people, including directors, senior management and core key personnel of the company (including branches and holding subsidiaries) at the time of the announcement. The amortization expenses for this incentive plan 2024-2026 (assuming grant in September 2024) are $6.2246, 14.5612, and $4.2241 million, respectively. In terms of company-level performance assessment, the trigger conditions for this incentive plan are: 2024-2025 revenue will increase by 30% and 60%, respectively, compared to 2023, and total profit will increase by 30% and 60%, respectively, compared to 2023. Revenue for 2024-2025 was 1.231 billion yuan and 1.515 billion yuan, up 30% and 23% year on year, respectively; total profit was 0.095 and 0.117 billion yuan, up 30% and 23% year on year, respectively.

The target conditions for the assessment are: 2024-2025 revenue will increase by 50% and 100% compared to 2023, respectively, and total profit will increase by 60% and 100% compared to 2023, respectively. That is, revenue for 2024-2025 was 1.421 billion yuan and 1.894 billion yuan, up 50% and 33% year on year, respectively; total profit was 0.117 and 0.146 billion yuan, up 60% and 25% year on year, respectively.

Investment advice: Steady growth in performance, equity incentives boost confidence, and maintain an increase in holdings rating. The company's net profit from 2024 to 2026 is expected to be 0.134, 0.19, and 0.238 billion yuan, respectively, up 104%, 41%, and 26% year-on-year, respectively, and corresponding valuations are 28, 20, and 16 times, respectively. Daily-use glass is the company's traditional dominant sector. The industry has changed from rapid development to a stage of high-quality development, and leading enterprises have benefited even more. The market size of the pharmaceutical glass industry is showing an increasing trend. Borosilicate glass benefits from consistent evaluation policies, and the penetration rate will increase rapidly. As the company expands its borosilicate control bottles, it is also actively entering the borosilicate molded bottle market with a better market pattern, and the future is full of growth.

Risk warning: Risks that fund-raising projects fall short of expectations; risk of rising raw materials; risk of falling overseas demand; risk of increased market competition, etc.