Description of the event

In 2024H1, the company achieved revenue of 0.561 billion, up 21.4% year on year; attributable net profit of 0.051 billion, up 27.7% year on year; equivalent to Q2 revenue of 0.294 billion, up 23.7% year on year; and attributable net profit of 0.026 billion, up 53.6% year on year.

Incident comments

Revenue grew steadily, and profitability recovered significantly. The company's revenue in the first half of the year was 21.4%. By business, pharmaceutical glass achieved revenue of 0.255 billion yuan, an increase of 20.91% over the previous year. The company successfully transferred borosilicate molded bottles to A in April of this year, and the second kiln was put into operation in May. The revenue growth rate for borosilicate products is expected to be faster; sales in the heat-resistant glass business gradually recovered, achieving revenue of 0.285 billion yuan, an increase of 17.62% over the previous year. In terms of profitability, 2024H1 achieved a gross profit margin of 20.3%, an increase of 3.4 pcts over the previous year. On the one hand, the price of borax began to fall, and on the other hand, the high gross profit share of heat-resistant and medicinal glass increased. Looking at the spin-off, the gross profit margin of medicinal glass was 24.1%, up 0.37 pcts year on year; heat-resistant glass was 17.16%, up 5.82 pcts year on year.

The 2024H1 company's rate for the period was 10.7%, an increase of 1.9 pcts over the previous year. Of these, the financial rate increased by 2.3 pcts, mainly due to interest payments on convertible bonds. In the end, 2024H1 achieved an attributable net interest rate of 9.1%, an increase of 0.5 pct over the previous year.

Q2 Revenue growth accelerated, and gross margin continued to improve year over year. Q2 revenue also increased by 23.7%, up from Q1.

The Q2 gross profit margin was 19.9%, up 5.7 pcts. It declined slightly from month to month, and continued to improve significantly year over year. The rate increased by 2.3 pcts to 10.9% during the Q2 period, with the financial rate increasing by 2.3 pcts, mainly affected by interest payments on convertible bonds. Furthermore, government subsidies were reduced in the current period, and other income decreased by 3.13 million year on year; in the end, the net attributable interest rate was 9.0%, up 1.8 pcts.

Expect the volume of medium borosilicate molded bottles to be released. At the end of April 2024, the company's borosilicate glass molded injection bottles passed the CDE technical review and reached A status, indicating that the company's borosilicate molded injection bottles can be officially sold in batches; in May 2024, the company's second borosilicate molded bottle kiln was successfully ignited, and after the project reached delivery, it was possible to achieve an annual output of 0.011 million tons of borosilicate pharmaceutical molded bottles. From an industry perspective, the implementation of related approval and generic drug consistency evaluation policies has led to supply-side reforms in the pharmaceutical industry. Among them, pharmaceutical glass is one of the most widely used pharmaceutical packaging materials, and its industry concentration is expected to increase at an accelerated pace, and the process of replacing neutral pharmaceutical glass with better performance is expected to accelerate. The number of drugs that have passed the evaluation increased rapidly in 2023. A total of 2,713 generic drugs passed the consistency evaluation, involving 742 varieties. Compared with the 1,899 product regulations in 2022, the year-on-year increase was 42.86%. The deepening of the consistency evaluation is driving the rapid increase in the penetration rate of borosilicate in China.

Incentives continue to advance, demonstrating the driving force for management. The company announced the 2024 restricted stock incentive plan. The number of restricted shares to be granted to 35 incentive recipients is 3.525 million shares, accounting for about 1.52% of the total share capital, and the grant price is 6.88 yuan/share.

According to the unlocking conditions, the growth rate of operating income or the growth rate of total profit is assessed. The incentive target for 2024 is: revenue growth trigger value 30% growth rate, target value 50% growth rate; or total profit trigger value 30% growth rate, target value 60% growth rate.

Investment advice: I am optimistic about the rapid release of borosilicate glass in the company and the steady recovery of daily-use glass. It is estimated that in 2024 and 2025, net profit of 0.13 or 0.2 billion yuan, corresponding to PE 22 or 14 times, will be given a purchase rating.

Risk warning

1. New product expansion falls short of expectations;

2. Increased market competition.