Event: The company released its 2024 semi-annual report.

Comment:

The year-on-year decline in net profit to mother in 2024Q2 narrowed, with a significant month-on-month improvement. The company achieved revenue of 3.582 billion yuan in the first half of 2024, up 4.35% year on year; net profit to mother was 0.416 billion yuan, down 19.54% year on year; net profit after deduction was 0.431 billion yuan, down 10.02% year on year. Among them, 2024Q2 achieved revenue of 2.067 billion yuan, up 15.75% year on year and 36.41% month on month; net profit to mother of 0.251 billion yuan, down 7.54% year on year, up 51.97% month on month; net profit after deducting 0.247 billion yuan, down 1.38% year on year and up 34.63% month on month.

Q2 gross margin and net margin increased month-on-month. The gross profit margin for the first half of the year was 27.88%, down 3.07pct year on year; the net profit margin was 11.68%, down 3.53 pct year on year. The cost rate for the period was 13.77%, a year-on-year decrease of 0.31pct.

Among them, sales expenses, management expenses, and financial expenses increased by 27.96%, 26.86%, and 136.35%, respectively, and R&D expenses decreased by 24.72% year-on-year. Q2 gross profit margin was 28.37%, down 2.04 pct year on year, up 1.16 pct month on month; net profit margin was 12.36%, down 3.01 pct year on year, up 1.6 pct month on month.

The sharp month-on-month increase in Q2 revenue and an increase in gross margin led to a significant month-on-month improvement in net profit to mother.

The decline in gross margin of the battery chemicals business has narrowed, and profits are still declining. The battery chemicals business achieved revenue of 2.293 billion yuan in the first half of the year, accounting for 64%, up 4.44% year on year, gross profit margin 13.65%, down 2.08 pct year on year. Due to the rapid release of production capacity in the lithium battery industry and high pressure on downstream customers to reduce costs, sales continued to grow year on year, but product prices continued to decline. As a result, sales increased only slightly year on year, and profits still declined.

The organofluorine chemicals business is under pressure in the short term. The organic fluorochemicals business achieved revenue of 0.712 billion yuan in the first half of the year, accounting for 20%, a year-on-year decrease of 4.72%, and a gross profit margin of 62.22%, a year-on-year decrease of 10.17 pcts. Demand for fluorine chemical terminals was basically stable in the first half of the year. The company's organic fluorine chemicals business product sales structure was adjusted, and the first phase of the Heidford project was gradually put into operation. We are still optimistic about the market potential of the company's second and third generation products.

Capacitor chemicals and semiconductor chemicals businesses are growing rapidly. In the first half of the year, the capacitor chemicals business achieved revenue of 0.365 billion yuan, accounting for 10%, up 20.07% year on year, gross profit margin of 40.48%, up 2.14 pct year on year. Downstream industrial automation, new energy and other industries are developing rapidly, and the company has further increased its market share with technological and product advantages. The semiconductor chemicals business achieved revenue of 0.177 billion yuan, accounting for 5%, an increase of 15.98% over the previous year. It is mainly due to significant growth in products used in integrated circuits, and there is plenty of room for future growth.

Investment advice: Maintain an increase in holdings rating. EPS is expected to be 1.45 yuan, 1.85 yuan, and 2.24 yuan respectively in 2024-2026, and the corresponding PE will be 22 times, 17 times, and 14 times, respectively, maintaining an increase rating.

Risk warning: Risk of downstream demand falling short of expectations; increased risk of market competition; risk of battery technology iteration; risk of large fluctuations in raw material prices.