1H24 results are in line with market expectations
Wanrun Co., Ltd. announced 1H24 results: revenue of 1.956 billion yuan, a year-on-year decrease of 5.66%; net profit to mother of 0.215 billion yuan, corresponding to profit of 0.23 yuan per share, a year-on-year decrease of 44.71%, in line with market expectations.
The sharp decline in 1H24's profit was mainly due to varying degrees of decline in revenue from zeolite materials, life science and pharmaceutical businesses, and a 1.04ppt year-on-year decrease in gross margin, which led to a year-on-year decrease of 0.069 billion yuan in gross profit of 1H24, while the overall year-on-year increase in expenses during the period increased by 0.081 billion yuan due to rising management expenses and R&D expenses.
1H24 functional materials revenue increased 5.35% year on year to 1.624 billion yuan, gross margin decreased by 2.2ppt to 40.67% year on year; life science and pharmaceutical business revenue fell 38.53% year on year to 0.311 billion yuan, gross margin increased 1.48ppt to 37.2% year on year. The year-on-year decline in revenue was mainly due to shrinking demand for some customer-specific pharmaceutical intermediate products with phased demand in the same period last year, and the decline in downstream demand in the subsidiary MP industry. 1H24 subsidiary MP Revenue fell 17% year over year to 0.237 billion yuan, and net profit decreased 26.51 million yuan year over year.
2Q24's revenue was 1.018 billion yuan, down 2.2% year on year, up 8.6% month on month; net profit to mother was 0.117 billion yuan, down 45% year on year, up 19% month on month. 2Q24 gross profit margin was 37.6%, down 2.77/2.87ppt year over month.
Development trends
Revenue from OLED materials, PI materials, and semiconductor materials continues to grow rapidly. Benefiting from the rapid growth in OLED monomer material orders, the 1H24 subsidiary Jiumu Chemical's revenue increased 34.8% year on year to 0.494 billion yuan, net profit to mother increased 57.7% year on year to 0.134 billion yuan, and net interest rate increased 3.93ppt to 27.2% year on year. Due to the increase in orders for OLED finished materials and PI finished materials, the 1H24 subsidiary's March technology revenue increased 92% year on year to 0.073 billion yuan, and net profit decreased 2.21 million yuan year on year. The construction of the first phase of the company's new materials project in Penglai is progressing steadily, covering the production capacity of many materials such as thermoplastic PI materials, PI monomers, and photoresist monomers. As global OLED panel production capacity continues to increase and the localization of PI finished materials and OLED finished materials, the company's revenue from materials such as OLED materials, PI materials, and photoresist monomers will continue to grow rapidly.
Profit forecasting and valuation
Taking into account the decline in zeolite materials, life science and pharmaceutical businesses, as well as rising R&D and management expenses, we lowered our 2024/25 profit forecast by 27.5%/23.7% to 0.508 billion yuan and 640 million yuan.
Currently, the company's stock price corresponds to the 2024/25 14.7/11.6x price-earnings ratio. Due to a reduction in profit forecasts and a downward shift in the industry valuation center, we lowered our target price by 36% to $11.5, corresponding to 44% room for growth and the 21/17x price-earnings ratio in 2024/25, and maintain our outperforming industry rating.
risks
Sales of zeolite materials and liquid crystal materials declined sharply, there was a risk of impairment of goodwill, and the RMB appreciated sharply.