Event: The company publishes its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 2.82 billion yuan, a year-on-year increase of 12.5%; achieved net profit of 0.22 billion yuan, a year-on-year increase of 20.5%; and realized net profit of 0.212 billion yuan after deduction, an increase of 20.4% over the previous year. With 2024Q2, the company achieved revenue of 1.466 billion yuan in a single quarter, up 11.1% year on year and 8.2% month on month; realized net profit to mother of 0.113 billion yuan, up 13.3% year on year and 5.5% month on month.

Comment:

The gross margin of anti-aging agent products was restored, and the company's performance increased. In the first half of 2024, the company's anti-aging additives business (antioxidants, light stabilizers, U-pack) achieved total revenue of 2.18 billion yuan, an increase of 11.1% year-on-year, and a corresponding gross margin of 25.1%, an increase of 3.6 pcts year-on-year. The increase in the company's anti-aging additive revenue was mainly due to the continuous rise in current production capacity, while the increase in gross margin was due to the decline in raw material prices and the steady rise in the company's product prices. In the first half of 2024, the company's lubricant additives business achieved revenue of 0.522 billion yuan, a year-on-year increase of 26.4%, and a corresponding gross margin of 8.0%, a year-on-year decline of 6.6 pcts. The main reason for the decline in gross margin of the lubricant additive business is that the company's Kangtai Phase II production capacity is still climbing, and the overall scale effect of the project is yet to be seen. In terms of cost ratio, in the first half of 2024, the company's sales, management, R&D, and financial expenses increased by 0.12 pct, 0.50 pct, 0.34 pct, and 0.32 pct, respectively.

Korea's IPI share acquisition was completed, and it officially entered high-end electronic grade PI materials. In December 2023, Lianlong announced that it plans to increase the capital to Yixing Chuangju Electronic Materials Co., Ltd. with 0.2 billion yuan of its own capital. After the capital increase is completed, the company will hold 51.1838% of Yixing Chuangju's shares, and Yixing Chuangju will fully acquire 100% of Korea's IPI shares. As of August 16, 2024, the above transactions and share acquisitions have been completed. Currently, the products already mass-produced and sold by IPI Korea are mainly flexible display materials, flexible circuit board materials, and advanced semiconductor packaging materials, which are compatible with YPI, FTPI, and PTPI, respectively. Currently, IPI Korea has an industrial production line with YPI paste production capacity of 500 tons/year and TPI film coating production capacity of 4 million square meters/year in Korea. Subsequently, the company will further build a flexible substrate material localization project in the Yixing Economic Development Zone. The project will be built in two phases. After completion, the total production capacity of the company's domestic and overseas YPI slurry will reach 2,500 tons/year, and the total production capacity of TPI film coating will reach 24 million square meters/year. The first phase of production capacity is expected to be completed and put into operation in 2025.

Profit forecasting, valuation and ratings: Benefiting from the continued release of production capacity for anti-aging additives and the restoration of the gross margin of corresponding products, the company's profit resumed year-on-year growth in the first half of 2024, and the results were in line with expectations. We maintain the company's profit forecast for 2024-2026. We expect the company's net profit to be 0.461, 0.606, and 0.757 billion yuan respectively in 2024-2026, maintaining a “buy” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, production capacity climbing progress falls short of expectations, product development risks, and customer introduction progress falls short of expectations.