Company announcement: The company released its 2024 mid-year report. During the reporting period, it achieved operating income of 3.582 billion yuan (YoY +4.35%), net profit due to mother 0.416 billion yuan (YoY -19.54%), and net profit not to mother of 0.431 billion yuan (YoY -10.02%). The results were in line with expectations. Among them, Q2 achieved operating income of 2.067 billion yuan (YoY +15.75%, QoQ +36.41%), net profit of 0.251 billion yuan (YoY -7.54%, QoQ +51.97%), and net profit without return to mother of 0.247 billion yuan (YoY -1.38%, QoQ +34.63%), which is in line with expectations. In terms of gross margin, the electrolyte business boom was under year-on-year pressure. Due to the restructuring of fluorine chemical products, the company's 24Q2 gross profit margin in a single quarter was 28.37%, down 2.04pct year on year, up 1.16 pct from month to month. In terms of period expenses, sales expenses, management expenses, R&D expenses, and R&D expenses changed by +878.61, +5725.6, -2846.74, and +17.2987 million yuan, respectively. At the same time, the net profit of Q2's fair value changes increased by 32.7032 million yuan month-on-month, supporting the net profit for the single quarter Interest rates rose 1.6 pct to 12.36% month-on-month.

The domestic electrolyte boom is gradually bottoming out, and Polish factories continue to release volumes. Since 2024, the domestic electrolyte industry has remained at the bottom of the boom. According to the Baichuan Information Price Module, the average domestic electrolyte price was 0.0212 million yuan/ton in 24Q2, down 40.5% year on year and 0.9% month on month. As the electrolyte boom continues to decline, the industry gradually began to clear up spontaneously, backward production capacity was withdrawn one after another, investment and construction projects continued to be delayed, and the boom is expected to gradually bottom out. The company's 24H1 business gross profit margin was 13.65%, a year-on-year decline of 2.08 pcts. In addition, the company's electrolyte production capacity under construction was released one after another, and the scale increased rapidly. Production reached 0.157 million tons in the first half of 2024, an increase of 86.8% year on year, making up for some downward pressure on the economy, and revenue increased 4.4% year on year to 2.29 billion yuan. The company continues to improve the global layout of electrolytes. In the second quarter of 2023, the 0.04 million tons/year lithium-ion battery electrolyte project was put into operation in Poland. At the same time, it is planned to increase the proportion of overseas sales of products and support the continuous expansion of the business scale.

The depreciation and amortization pressure on Hyde Fluoride has increased, and the long-term pattern optimization logic has not changed. The company acquired Hisford through epitaxial, invested endogenously to build Hydefford, and rapidly expanded the scale of the fluorine chemical business. However, due to Heidford's main business of tetrafluoroethylene and fluoropolymers, as an extension of the company's new industrial chain, it still takes a certain amount of time to climb the slope. Short-term depreciation and amortization pressure is high, dragging down the overall profit of the fluorine chemical sector. In addition, sales of fluorine chemicals and materials such as fluorinated coolants used in the semiconductor industry went down 10.17pct to 62.22% year on year. However, with the release of the company's Hysford Phase II production capacity, the 24H1 business output increased 186% year over year to 7103 tons. At the same time, the Hasford Phase III 0.03 million tons/year project will further strengthen the company's position in the industry. According to 3M's official website, 3M announced that it will withdraw from related businesses by the end of 2025, the EU's environmental policy is also gradually being tightened, and the supply chain of global semiconductor companies is gradually being restructured. With long-term technology accumulation, the company is expected to continue to expand its global market share on the basis of supply chain restructuring and contribute to major performance increases.

Profit forecast and valuation: Maintaining the company's profit forecast for 2024-2026, it is expected to achieve net profit of 1.198, 1.71, and 2.425 billion yuan, respectively. The corresponding PE valuations are 20X, 14X, and 10X, respectively, maintaining the “incremental” rating.

Risk warning: The commissioning of new projects falls short of expectations; downstream demand falls short of expectations.