Event: Saite New Materials released its 2024 semi-annual report. Saite New Materials achieved revenue of 0.452 billion yuan in the first half of 2024, a year-on-year increase of 27.79%, achieved net profit of 54.16 million yuan, an increase of 30.42% over the previous year, and achieved net profit of 51.01 million yuan after deduction, an increase of 14.85% over the previous year. Among them, in the second quarter, the company generated revenue of 0.229 billion yuan, a year-on-year increase of 13.67%; net profit to mother was 25.49 million yuan, a year-on-year decrease of 15.46%; net profit after deducting non-return to mother was 23.53 million yuan, a year-on-year decrease of 29.81%.

Q2 There was a correction in market demand, but the company's resilience to risk was leading in the industry. In the first half of 2024, in order to avoid the adverse effects of the Red Sea situation on capacity and freight, some overseas refrigerator companies moved forward in the pace of production and procurement, and the domestic side actively prepared goods in the middle and downstream of the Q1 white power industry, causing part of Q2 domestic and foreign demand to be overdrawn. Overall, demand in the Q2 vacuum insulation board market slowed down. However, the company's Q2 revenue still showed positive year-on-month growth, showing strong resilience to risks. This was mainly based on: 1) VIP board expansion, and the scale advantage was further consolidated. In March and May 2024, new production line equipment was put into use at the Liancheng headquarters. Plant construction and equipment installation in Anhui were also steadily implemented in the first half of the year. 2) Integrated layout of the VIP board industry chain. The company is one of the few enterprises in the industry that also has the ability to produce and prepare core materials, barrier films, adsorbents, vacuum packaging and product performance testing. The industrial chain layout is complete, and the cost and quality control capabilities are outstanding. 3) The diversity of VIP products and applications continues to expand. In recent years, the company has developed various new products such as four-side sealed VIP, metal VIP, lightweight VIP, and construction VIP, which can not only meet the various cost and performance requirements of refrigerator customers, but also extend application scenarios from refrigerators and freezers to various fields such as construction, new energy vehicles, and pipeline insulation, improving growth space and risk resistance.

The gross margin performance was good, and financial expenses were affected by the calculation of convertible debt expenses and a decrease in exchange earnings. In the first half of the year, the company's comprehensive gross profit margin was 33.47%, an increase of 1.41 pct over the previous year. Prices of some raw materials and energy rebounded to benefit the cost side. The gross margin of Q1-Q2 was 34.56% and 32.41%, respectively, with year-on-year changes of +4.76pct and -1.37pct, respectively. The slight decrease in Q2 gross margin is estimated mainly due to the high unit consumption of fixed costs such as labor and equipment depreciation during the production capacity climbing period. The cost rate for the first half of the year was 18.56%, +3.69pct year on year; the cost rate for the single Q2 period was 18.46%, +6.88pct year on year. Among them, the financial expense ratio had the greatest impact, mainly due to a sharp year-on-year decrease in exchange income from convertible bond interest measures. The management/R&D cost ratio increased by 0.09pct/1.67pct year on year, respectively. The increase in R&D expenses was mainly due to increased R&D investment by subsidiaries Weiji and Anhui Saite. Corresponding to the net sales margin of 11.98% in the first half of the year, a year-on-year increase of 0.24pct, the Q1-Q2 net sales margin was 12.83% and 11.15%, respectively, with year-on-year changes of +5.38pct and -3.84pct, respectively.

Improved cash flow and sales payback indicators. The company's net operating cash flow in the first half of the year was 59.06 million yuan, up 45.52% year on year, and the net profit cash content was 1.09, which was 0.98 for the same period last year. The improvement in cash flow was mainly due to a significant increase in the sales to cash ratio in the first half of the year, which reached 97.34%, an increase of 11.92 pcts over the previous year.

Profit forecast and investment suggestions: The long-term growth trend of the vacuum insulation board market has not changed. Saite New Materials has a stable leading advantage. Furthermore, the company's new vacuum glass product is in the early stages of mass production, and the market potential is high. Considering that changes in the external market environment have exceeded expectations this year, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is 0.13 billion, 0.16 billion, and 0.19 billion, respectively, corresponding to PE of 17 times, 14 times, and 11 times, respectively, maintaining a “buy” rating.

Risk warning: The progress of vacuum glass production falls short of the expected risk; the penetration rate of vacuum insulation panels does not increase as much as expected; price competition increases the risk.