1H24 results are in line with market expectations

Lanxiao Technology announced 1H24 results: revenue of 1.295 billion yuan, up 29% year on year; net profit to mother of 0.404 billion yuan, corresponding to profit of 0.80 yuan per share, up 17% year on year, in line with market expectations. After deducting the impact of exchange gains and losses, 1H24's net profit to mother increased 30% year on year; after deducting non-net profit of 0.393 billion yuan, up 16.4% year on year; net cash flow from operating activities was 0.211 billion yuan, up 16.1% year on year.

Among them, 2Q24 achieved revenue of 0.664 billion yuan, up 31%/5.2% month-on-month; net profit to mother of 0.235 billion yuan, up 10.8%/38.9% month-on-month; and gross margin increased 1.3 ppt/4ppt to 49.4%, maintaining a high level.

By sector, 1H24 life science business revenue increased 33% year over year to 0.285 billion yuan, water treatment and ultra-purification business revenue increased 30% year over year to 0.323 billion yuan, metal resources business revenue increased 45% year over year to 0.121 billion yuan, energy saving and environmental protection/food processing/chemical catalysis business revenue increased 18%/40%/44% year over year to 0.104/0.025/0.097 billion yuan, respectively; system equipment business achieved revenue of 0.289 billion yuan (including 0.1 billion yuan of lithium extraction from salt lakes), an increase of 38% over the previous year. The gross margin of 1H24 was basically flat at 47.5% year on year, of which the gross profit margin of adsorption materials was 51%, up 1.5ppt year on year.

Development trends

The core business segment has outstanding competitive advantages and strengthens overseas marketing and technical support layout. The company has maintained a leading position in salt lake lithium extraction and solid phase synthesis carriers for many years with solid technology and leading industrialization capabilities. Recently, the company strengthened its overseas layout in related fields: in terms of lithium extraction, the company's South American R&D center in Argentina plays a “strategic fulcrum” role in international marketing, providing efficient, timely, and localized technical services to customers in the “lithium triangle” region; in the field of biotechnology, it has strengthened its global marketing and technical service network. It continues to expand its localization team in North America and Europe to make up for shortcomings in the international biotech market. According to the announcement, 1H24's overseas sales revenue was 0.352 billion yuan, an increase of 56% over the previous year. Looking ahead, we believe that overseas market development may become one of the main driving forces for Lan Xiao's long-term growth.

The plan is to build 0.02 million tons of high-end materials production capacity to support medium- to long-term performance growth. In July 2024, the company announced that its wholly-owned subsidiary Pucheng Lanxiao plans to purchase land use rights to build 0.02 million tons of high-end materials production capacity, covering high-value-added adsorption and separation materials such as ultrapure water and food. We believe that the new production capacity construction can meet the needs of high-end application market expansion and support the company's long-term growth.

Profit forecasting and valuation

Due to the continued decline in lithium prices, construction of the Salt Lake lithium extraction project may slow down. We lowered our 2024/25 profit forecast by 5%/8% to 0.91/1.15 billion yuan. The current stock price corresponds to 21.2/16.8 times the price-earnings ratio for 2024/25, respectively. Due to the reduction in profit forecasts, we lowered our target price by 5% to 55 yuan, corresponding to the 2024/25 price-earnings ratio of 30.6/24.2 times and an upward margin of 44%, maintaining the outperforming industry rating.

risks

Competition in the industry intensified, downstream demand growth fell short of expectations, and the decline in lithium prices led to a slowdown in lithium project construction.