The performance was in line with expectations. Q2 production and sales growth helped improve profitability month-on-month. The company released its 2024 mid-year report, achieving revenue of 2.122 billion yuan, +16% year over year; net profit to mother 0.16 billion yuan, -27.5% year over year; deducted non-net profit of 0.109 billion yuan, +194.6% year over year. Non-recurring profit and loss were mainly government subsidies of 56.55 million yuan. Among them, Q2 revenue was 1.202 billion yuan, +23.8% YoY, +30.5% month-on-month; net profit to mother was 0.109 billion yuan, -27.1% YoY and +115.1% month-on-month; after deducting non-net profit of 0.072 billion yuan, +16.1% YoY and +94.5% month-on-month. Q2 Year-on-month growth in sales of electrical insulation materials, optical film materials, and electronic materials helped improve performance month-on-month. Considering the company's project progress and production and marketing operations, we maintain profit forecasts. We expect net profit to be 0.453, 0.633, and 0.783 billion yuan respectively for 2024-2026, EPS 0.51, 0.71, and 0.87 yuan/share, respectively. The current stock price corresponding to 2024-2026 PE is 12.4, 8.9, and 7.2 times. With the orderly release of new production capacity for optical films and electronic resins, we are optimistic about the company's medium- to long-term growth and maintain a “buy” rating.
Q2 profitability improved month-on-month. In terms of investing in the construction of electronic materials for high-speed communication substrates to enhance competitiveness and profitability, the gross sales margin and net margin of 2024Q2 were 16.12% and 8.8%, respectively, and +3.41 and +3.99 pcts, respectively, compared to Q1. By product, 2024Q2 electrical insulation materials, new energy materials, optical film materials, electronic materials, and environmentally friendly flame retardant materials generated revenue of 1.32, 3.83, 0.3, 0.308, 0.044 billion yuan, +10.6%, +40.4%, +40.4%, year-on-year, +31.6%, +37.9%, +14.4%, +42.6%, +56.1%, month-on-month, +60.2%, -1.9%, +43.4%, +51.3%, + 26.0%, the average price of 2024H1 optical film materials was +3.6% year over year, and the average price of other main products was still under pressure year on year. The company also announced that it plans to establish Sun Company Dongcai Electronic Materials (Meishan) to invest in the construction of an “electronic material project with an annual output of 20,000 tons of high-speed communication substrates” in Meishan, Sichuan Province, with a total investment of 0.7 billion yuan. The products include 5,000 tons of electron-grade low-dielectric loss thermosetting polyphenylene ether resin, 2,000 tons of electron-grade non-crystalline maleimide resin, 1,500 tons of electron-grade crystalline maleimide resin, 4,000 tons of electron-grade low-dielectric loss active ester curing resin, 3,500 tons of electronic grade hydrocarbon resin, 4,000 tons Tons of electronic-grade phosphorus-containing flame retardant resin with low dielectric loss. We believe that with the release of new production capacity for optical films and electronic resins and the optimization of the variety structure, the company has sufficient momentum for high-quality development.
Risk warning: Project progress falls short of expectations, demand recovery falls short of expectations, price fluctuations of products and raw materials, etc.
