Event: The company publishes its 2024 semi-annual report. 24H1 achieved operating income of 2.013 billion yuan, a year-on-year decrease of 3.26%; realized net profit to mother of 0.137 billion yuan, a year-on-year decrease of 38.76%. Among them, 24Q2 achieved operating income of 1.043 billion yuan, up 4.02% year on year and 7.62% month on month; net profit to mother was 0.057 billion yuan, down 44.41% year on year, down 27.64% month on month.

The sales price of products in the photovoltaic industry declined, and 24H1's performance declined year on year. The year-on-year decline in 24H1's performance was mainly due to a drop in the sales price of the company's products in the photovoltaic industry. 24H1, the company's main products achieved revenue of 1.036, 0.416, and 0.287 billion yuan respectively, with year-on-year changes of -4.14%, +10.11%, and -38.70%, respectively. The gross margins of the three were 17.73%, 20.83%, and 11.31%, respectively, with year-on-year changes of -8.86, -4.58, and -9.26pct, respectively. The cumulative sales volume of 24H1's main adhesive products was about 0.1274 million tons, an increase of 31.53% over the previous year. In terms of cost ratios, 24H1's sales, management, R&D, and financial expenses rates were 3.5%, 4.5%, 3.6%, and 1.1%, respectively, with year-on-year changes of -0.4, -0.2, -0.2, and +0.9 pct, respectively.

Multiple businesses are making concerted efforts, and market share continues to increase. In terms of photovoltaic business, 24H1's photovoltaic silicone sales increased by more than 20% year on year. In the electronic and electrical business, sales of 24H1 consumer electronics adhesives increased by more than 50% year-on-year, and the main categories of mobile phone adhesives were used by leading customers in the industry; in the field of automotive electronics, new UV adhesives, three-proof paint, and single and two-component thermal conductive gels were successfully introduced to benchmark customers such as BYD, Huichuan Technology, INVITAM, and Langxin. In terms of the new energy business, in the field of passenger car adhesives, leading independent car companies BYD and Chery maintained a high share of supply, reached strategic partnerships with Geely Automobile, promoted a full range of adhesive products, and achieved business breakthroughs in new car builders such as Xiaomi and Xiaopeng Motor; in the lithium battery business, anode adhesives, three-proof paint, etc. were successfully introduced to leading customers and delivered in batches. Product sales increased dramatically; in the bus sector, leading customer shares such as Yutong and Ouhui increased their performance steadily.

The layout optimizes domestic and foreign production capacity, and continuously optimizes the business structure and industrial layout. In recent years, according to market demand, the company has continued to maintain resource investment in photovoltaic new energy, consumer electronics, smart appliances, new energy vehicles, lithium battery energy storage, green packaging, etc., and has continuously optimized the business structure and industrial layout. New bases in Xiangyang and Guangzhou have been built and opened, and new production capacity such as photovoltaic silicone, electronic and electrical adhesives, and lithium battery adhesives have been put into operation. At the same time, it has promoted factory construction in Vietnam and laid out overseas production capacity. The company currently has an annual production capacity of about 0.21 million tons of silicone, 0.065 million tons of polyurethane glue, 0.025 million tons of other adhesives, and an annual production capacity of 0.12 billion square meters of solar cell back film.

Profit forecast, valuation and rating: The sales price of the company's products in the photovoltaic industry declined. We lowered the company's 24-26 profit forecast. The company's net profit for 24-26 is estimated to be 2.58 (down 26.9%) /3.09 (24.0%) /3.51 billion yuan (down 29.9%), respectively. Benefiting from policy support, downstream demand for new energy sources such as photovoltaics and lithium batteries is still strong. As the company's production capacity continues to increase, the company's business conditions will continue to improve, and we will still maintain the company's “buy” rating.

Risk warning: Product and raw material prices fluctuate, capacity construction falls short of expectations, product verification risks.