Incident: The company released its 2024 semi-annual report. 24H1 achieved operating income of 2.122 billion yuan, +16.03% year over year, and realized net profit to mother of 0.16 billion yuan, or -27.45% year on year. Among them, 24Q2 achieved operating income of 1.202 billion yuan, +23.79% year over month, +30.51% month on month; realized net profit of 0.109 billion yuan to mother, -27.08% year on year, +115.11% month on month.

24H1 revenue growth profit declined year on year, and Q2 revenue and profit both increased month-on-month. 24H1 electrical insulation materials achieved revenue of 0.221 billion yuan, +7.2% year on year, achieved sales volume of 0.0224 million tons, +27.5% year over year, average price ratio of -15.91%; new energy materials achieved revenue of 0.717 billion yuan, +8.9% year on year, achieved sales volume of 0.0387 million tons, +32.8% year on year, average price ratio of -18.03%; optical film materials achieved revenue of 0.51 billion yuan, +8.8% year on year, achieved sales volume 0.0439 million tons, +5.0% year over year, average price +3.56%; electronic materials achieved revenue of 0.535 billion yuan, +33.8% year over year, and achieved sales volume of 0.0289 million tons, +43.4% year on year, average price -6.72% year over year. In terms of gross margin, 24H1's gross sales margin was 14.64%, a year-on-year decrease of 5.51pct. In terms of cost rates, 24H1 sales, management, R&D, and finance expenses were 1.1%, 1.8%, 4.0%, and 2.0%, respectively, with year-on-year changes of -0.3, -1.3, -2.0, and +0.5pct, respectively.

The production and sales volume of 24H1's main products increased year-on-year, and the short-term profitability of products related to the photovoltaic industry chain is under pressure. The sales volume of 24H1's main products achieved significant year-on-year growth. The increase in sales of products such as electrical insulation materials, bismaleimide resins, active ester curing agent resins, and insulating materials for new energy drive motors mainly benefits from high-quality development in emerging industries such as computing power upgrades, artificial intelligence, and new energy vehicles, and strong demand in supporting high-speed communication substrates and drive motors; the increase in polypropylene film production and sales mainly benefits from accelerated investment in UHV power grids; due to prominent phased supply and demand contradictions in the photovoltaic industry chain, the market share of single glass modules has been squeezed, causing the price segments of polycrystalline silicon and solar back panel substrates to drop clearly, short-term profit Ability to bear pressure.

Accelerate the construction of industrialization projects, and the manufacturing level is in a leading position in the country. 24H1, the company accelerated the construction of industrial projects, “Optical grade polyester base film project with an annual output of 25,000 tons”, “Optical grade polyester base film technology transformation project with an annual output of 20,000 tons of ultra-thin MLCC”, “ultra-thin polypropylene film with an annual output of 3000 tons - Line 1”, etc., completed equipment commissioning and put into trial production; capacity utilization and product stability of newly built industrialization projects continued to improve, accelerating the release of high-quality production capacity. Furthermore, the company's manufacturing level is in a leading position in the country. The company has more than 30 sets of advanced production equipment and CNC slitting equipment imported from France, Japan, Germany, South Korea and other countries, and combines the company's many years of manufacturing experience to digest, absorb and transform imported production lines, actively explore intelligent manufacturing models, optimize production processes, and continuously improve the delivery capacity of core equipment.

It is proposed to expand the production capacity of electronic materials for high-speed communication substrates and enhance the supporting capacity of China's high-performance copper-clad plate industry chain. The company independently develops electronic grade resin materials such as maleimide resin, low dielectric loss active ester curing agent resin, hydrocarbon resin, and low dielectric loss thermosetting polyphenylene ether resin. Currently, maleimide resins and active ester curing agent resins with low dielectric loss have been supplied to mainstream industrial chain systems such as Nvidia, Huawei, Apple, and Intel through domestic and foreign first-line copper-clad plate manufacturers, and occupy a high market share. In order to further expand production capacity and leading advantages, enrich the product structure, and actively expand the market application of electronic materials in the fields of artificial intelligence and low-orbit satellite communications, the company announced on August 21, 24 that it intends to invest in the construction of an “electronic materials project for high-speed communication substrates with an annual output of 20,000 tons” through Sun Company Dongcai Electronic Materials (Meishan) Co., Ltd. The products include 5,000 tons of electronic-grade low-dielectric loss thermosetting polyphenylene ether resin, 2,000 tons of electronic-grade crystalline maleimide resin, 1,500 tons of electron-grade crystalline maleimide resin, 4,000 tons of electronic grade low dielectric loss active ester curing agent resin, 3,500 tons of electronic grade hydrocarbon resin, 4,000 tons of electronic grade low dielectric loss phosphorous flame retardant resin.

Profit forecast, valuation and rating: Due to the slow recovery in downstream demand for the company's terminals, we lowered the company's profit forecast for 24-26. The company's net profit for 24-26 is estimated to be 3.93 (14.4% reduction)/5.36 (12.3% reduction)/6.71 billion yuan (11.1% reduction), respectively. The company is a leading insulation material company in China. In recent years, it has focused on developing a series of products such as optical film materials, electronic materials, and environmentally friendly flame retardant materials. Various products have achieved layout in the middle and high-end fields. We are optimistic about the company's development prospects and maintain an “increase” rating.

Risk warning: There is a risk that production capacity implementation progress falls short of expectations, raw material prices fluctuate, and downstream demand falls short of expectations.