Key points of investment

Incident details: After the market on August 19, the company disclosed the 2024 interim report. In the first half of 2024, the company achieved operating income of 0.363 billion yuan, an increase of 36.48% over the previous year; net profit to mother was 0.08 billion yuan, an increase of 57.43% over the previous year. At the same time, the company announced a profit distribution plan for the semi-year 2024. Based on the company's total share capital of 56 million shares as of June 30, 2024, it plans to distribute a cash dividend of 2 yuan (tax included) to all shareholders for every 10 shares, for a total cash dividend of 11.2 million yuan (tax included).

Benefiting from strong demand in the automotive sector, the company's revenue and net profit in the first half of 2024 were impressive. In the first half of 2024, the company achieved operating income of 0.363 billion yuan, a year-on-year increase of 36.48%, and achieved net profit attributable to the parent company of 0.08 billion yuan, an increase of 57.43% over the previous year. 1) From January to June 2024, the company's revenue achieved relatively rapid growth. Among them, the automobile business contributed mainly to the company's revenue growth. The company's products have a broad market application base in the fields of automobiles, construction machinery, rail transit, communication electronics, etc. In the first half of 2024, sales revenue from the automotive sector was 0.226 billion yuan, accounting for about 62.28% of the company's total revenue, up 43.02% year on year, which is significantly higher than the company's overall revenue growth rate. In particular, the NEV business achieved revenue of 0.094 billion yuan in the first half of the year, an increase of 70.11% over the previous year, becoming the core growth engine for the company's revenue. 2) As the net profit growth rate is higher than the revenue growth rate, it is expected to benefit from the increase in gross margin due to the scale effect; in the first half of 2024, the company's gross margin was 46.91%, up 4.77 percentage points from the same period in 2023. Combined with the company's prospectus and the June 24 announcement, the increase in the company's gross margin is mainly due to the fact that in the first half of 2023, Jiangmen Jundingda was still in a phase of climbing capacity, and the operation of the production base became mature in 2024; under the steady increase in order demand, the company's new production capacity was released, and the scale effect was further highlighted.

2024Q2's revenue growth rate in a single quarter slowed slightly year on year, while net profit growth rate declined year on year. 2024Q2 achieved revenue of 0.199 billion yuan, a year-on-year increase of 34.88%, a slight decrease of 3.58 percentage points from the first-quarter revenue growth rate; achieved net profit of 0.035 billion yuan in a single quarter, an increase of 18.21% year-on-year, and a 92.52 percentage point decrease from the first quarter's net profit growth rate. Regarding the year-on-year slowdown in net profit growth, it is expected that there are two main reasons: 1) The 2024Q1 Jiangmen Jundingda production capacity climb is nearing its end, and the scale effect has already been shown. The company's gross margin reached a peak of 49.36% in recent years, up 5.05 percentage points from 2023Q1; however, it may also be affected by the intensification of the price war in the automobile market and the average price discount of some domestic dealers in the second quarter rose to a record high of more than 20%. Coupled with the effects of some new projects entering a production capacity climbing period one after another, the company's high gross margin failed to continue 2 and fall to 44.8 in 2024Q 7% 2) The company went public in mid-late March 2024. In order to consolidate its position in the industry, the company increased its investment in the second quarter; in 2024Q2, the company's sales expenses increased 66.82% year on year, management expenses increased 111.55% year on year, and R&D expenses increased 77.10% year on year.

Looking forward to the future, while demand in the automotive sector is expected to continue, demand in non-automotive applications is also rising steadily, and the development of the company's functional protective casing business is expected to stabilize and improve. Demand in the automotive sector is expected to maintain its boom; 1) With the implementation of trade-in policies and accelerated replacement of existing cars, sales in the automobile industry are expected to be further boosted. According to the Passenger Federation statistics, the cumulative retail sales volume in the domestic passenger car market from January to July 2024 was 11.556 million units, up 2.3% year on year, showing an overall “not light off season”; 2) New energy vehicles with higher demand for functional protective sleeves (judging from the value of bicycles) continued their relatively rapid growth trend. In July, the market retail sales volume continued its relatively rapid growth trend. Same This is an increase of 36.9%, and its penetration rate broke 50% per month for the first time, which is beneficial to the further growth of the company's automotive business. At the same time, demand for non-vehicle applications increased steadily; 1) In terms of construction machinery, exports of construction machinery strengthened in 2024. According to statistics from the China Construction Machinery Industry Association, the export volume from January to June 2024 was 183.518 billion yuan, up 7.24% year on year; 2) In terms of rail transit, CRRC signed a number of contracts between December 2023 and June 2024, with a total amount of about 78.21 billion yuan compared to 2023 The contract amount signed in January-May was 24.25 billion yuan, and the monthly contract amount for the first half of 2024 was about 2.3 times that of the first half of 2023; 3) In terms of communications and electronics, China's fiber optic cable industry is developing well, driven by multiple benefits such as 4G and 5G network construction and three-network integration pilots. According to data from the National Bureau of Statistics, the total length of optical cable lines in the first half of 2024 reached 67.117 million kilometers, an increase of 8.32% over the same period last year; in addition, according to statistics from the Ministry of Industry and Information Technology, as of the end of June, The total number of 5G base stations in China reached 3.917 million, a net increase of 0.54 million over the end of the previous year. 5G network construction progressed in an orderly manner.

Against the backdrop of growing downstream demand, the company's supporting production bases in Suzhou and Mexico are expected to be put into operation this year to help the company's performance grow; at the same time, its wholly-owned subsidiary Dongguan Jundingda plans to expand production capacity by 0.4 billion yuan, or further strengthen its scale advantage. 1) In terms of the original production expansion project, the “East China Headquarters for Producing Functional Protective Materials” project involved Suzhou Jundingda, a wholly-owned subsidiary of the company, to build a new production base in Suzhou, with a total planned construction area of about 47274.66 square meters; based on the company's prospectus information, the total construction area of the company's original plant is about 96706.58 square meters. Assuming that the new production capacity is estimated from this, the project's production capacity is expected to increase by 48.88% after delivery; according to the company's 2024 semi-annual report, the construction of the project has progressed 96.35%, and has already taken over Dingshan Kunda Most production functions will be phased into operation in late August 2024. Second, the company established a new wholly-owned subsidiary in Mexico in July 2023, which mainly targets North America and South America and serves customers in various industries such as automobiles, construction machinery, communications electronics, etc. According to the company's June 2024 announcement, the company aims to put these two production sites into operation within 2024. 2) In August 2024, the company announced that its wholly-owned subsidiary Dongguan Jundingda plans to invest 0.4 billion yuan in a functional protective material production and construction project in Dongguan, with a land area of about 0.02 million square meters (a total of 30 acres); based on the estimated construction area of the company's existing plant, the project is expected to increase 20% from the existing production capacity after delivery.

Investment advice: The company's performance for the first half of 2024 is basically in line with expectations; looking ahead to the full year of 2024, the downstream application fields of the company's functional protective casing are expected to maintain the boom. Combined with the continuous progress of the commissioning of supporting production sites, the company's performance is expected to grow well. Over the long term, the company has been deeply involved in the field of polymer modified protective materials for 20 years. It is a domestic leader in the functional protective casing segment. It has now accumulated rich high-quality customer resources, and its product performance indicators are comparable to similar products from leading foreign manufacturers, and it has strong international competitive strength. We expect total revenue for 2024-2026 to be 0.807 billion yuan, 1.021 billion yuan, and 1.244 billion yuan, respectively, with year-on-year growth rates of 25.4%, 26.5%, and 21.8% respectively; corresponding net profit to mother is 0.176 billion yuan, 0.229 billion yuan, and 0.287 billion yuan, respectively, with year-on-year growth rates of 25.8%, 30.3%, and 25.4% respectively; corresponding EPS is 3.14 yuan, 4.09 yuan and 5.13 yuan, corresponding PE is 23.1x, 17.7x, and 14.1x, respectively. It was covered for the first time, and an increase in holdings was given a rating of -A.

Risk warning: NEV industry prosperity risk, risk of new business expansion falling short of expectations, risk of international trade friction, risk of rising or untimely supply of raw materials, macroeconomic and industrial policy risks, technological innovation risks, market competition risks, etc.