1H24 results are in line with market expectations

China Catalyst announced 1H24 results: revenue of 0.396 billion yuan, up 67% year on year; net profit to mother of 0.096 billion yuan, corresponding to profit of 0.55 yuan per share, up 146% year on year, in line with market expectations. The rapid increase in 1H24's performance was mainly due to increased BASF orders (BASF confirmed revenue +102.4% YoY), the volume of metal catalyst products released, and increased capacity utilization and diluted fixed costs. 1H24 deducted non-net profit of 0.092 billion yuan, up 166% year on year; operating cash flow was 0.037 billion yuan, down 57% year on year.

2Q24 achieved revenue of 0.197 billion yuan, a year-on-month change of +73.3%/-0.9%; net profit to mother was 0.061 billion yuan, up 65%/75% month-on-month; 2Q24's gross margin increased 4.2ppt to 41.8% month-on-month due to increased utilization of the company's production capacity and diluted costs.

Development trends

BASF Mobile Source Denitrification Zeolite is the company's main revenue growth point. According to the announcement, 1H24 actively implemented the upgrading of denitrification molecular sieve products, and the new model products sold to BASF became the main growth point of the company's sales revenue in the first half of the year. 1H24 BASF contributed about 0.255 billion yuan in revenue, accounting for more than 60%. According to the announcement, at present, BASF Global Mobile Source Denitrification Zeolite is mainly supplied by China Catalyst. Looking ahead, benefiting from the implementation of China's six standards and stricter exhaust emission policies in other countries around the world, we believe that emerging markets such as China, North America, India, Thailand, Europe, and South Africa may become the main incremental markets for global mobile source denitrification molecular sieves, and the company's international market development space is expected to be broadened.

Actively expand the product line based on existing products and technical foundations. Combining fund-raising projects and self-investment projects, 1H24 is actively promoting the development and mass production of various environmentally friendly new material molecular sieves and catalyst products such as fixed source denitrification molecular sieves and ethylene glycol catalysts, fine chemicals such as high-purity silicon oxide, high-purity alumina, and metal catalyst products such as TRH special molecular sieve products, iron-molybdenum catalysts, nickel-copper catalysts, and maleic anhydride catalysts. We believe it is expected to help the company grow in the long term.

Profit forecasting and valuation

Considering the increase in demand from BASF and the release of the company's new products such as metal catalysts, we raised net profit by 35% and 39% to $180 and 220 million in 2024 and 2025. The company's current stock price corresponds to 19.2/15.9 times the price-earnings ratio in 2024/25. Profit forecasts were raised, but considering the decline in the valuation center of new materials companies, the target price remained unchanged at 25 yuan, corresponding to the 24/20 price-earnings ratio and 26% upward space in 2024/25, maintaining the industry rating.

risks

Major customers are highly dependent, downstream demand falls short of expectations, and the construction progress of new projects falls short of expectations.