Description of the event

On August 22, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved total operating income of 1.956 billion yuan, a year-on-year decrease of 5.66%; net profit to mother was 0.215 billion yuan, a year-on-year decrease of 44.71%; and net profit after deducting non-return to mother was 0.196 billion yuan, a year-on-year decrease of 48.72%. In the second quarter of 2024, revenue was 1.018 billion yuan, down 2.15% year on year and up 8.59% month on month; net profit to mother was 0.117 billion yuan, down 45.04% year on year and up 18.95% month on month; net profit without return to mother was 0.107 billion yuan, down 48.43% year on year, up 20.95% month on month.

Short-term pressure on performance in the first half of 2024, 2024Q2 performance improved the company achieved total operating income of 1.956 billion yuan in the first half of 2024, a year-on-year decrease of 5.66%; net profit to mother was 0.215 billion yuan, a year-on-year decrease of 44.71%; net profit after deducting non-return to mother was 0.196 billion yuan, a year-on-year decrease of 48.72%. Affected by the increase in expenses, short-term performance was under pressure. In the first half of 2024, the company's R&D expenses were about 0.212 billion yuan, an increase of about 33.31% over the previous year. In order to win more future market opportunities, the company continued to increase R&D efforts. By product, functional material products achieved revenue of 1.624 billion yuan, a year-on-year increase of 5.35%, gross profit margin of 40.67%, a year-on-year decrease of 5.12 pct; bioscience and pharmaceutical products achieved revenue of 0.311 billion yuan, a year-on-year decrease of 38.53%, gross profit margin of 37.20%, and a year-on-year increase of 4.16 pcts. It is mainly affected by factors such as weak overseas economic growth, insufficient downstream demand, and increased competition in the industry in which it is located.

In 2024 Q2, revenue was 1.018 billion yuan, down 2.15% year on year and up 8.59% month on month; net profit to mother was 0.117 billion yuan, down 45.04% year on year and up 18.95% month on month; net profit without return to mother was 0.107 billion yuan, down 48.43% year on year, up 20.95% month on month. Both improvements were made in 24Q2, and the future of the company's development can be expected.

Contributions from the company's multiple projects have been released, and the new product layout is progressing steadily

The company's multiple projects have grown dramatically, actively laid out new products, and opened up new growth space. On the OLED side, the subsidiary March Technology's “Comprehensive Technology R&D Center and New Optoelectronic Material High-end Production Base Project” and “Jiumu Chemical Production Base A04 Project” progressed steadily, with significant year-on-year growth, and contributions continued to be released. Jiumu Chemical's revenue for the first half of 2024 was about 0.494 billion yuan, an increase of about 34.84% over the same period last year. March Technology's revenue for the first half of 2024 was about 72.87 million yuan, an increase of about 92.29% over the same period last year. In the first half of 2024, the company's zeolite molecular sieves used in the field of petrochemical catalytic cracking were sold, and the company's thermoplastic PI materials were successfully selected in the “Central Enterprise Science and Technology Innovation Achievements Product Manual (2023 Edition)” as one of the 202 products in the manual.

At the same time, Jiumu Chemical's fluoride-free proton membrane materials have been sold downstream as pilot products, and the photovoltaic film materials passed downstream certification and achieved sales during the reporting period.

Perfect R&D and production capacity layout, optimistic about the company's sustainable development

The company's R&D investment remains high, and the production capacity layout continues to advance. The company has production technology for about 10,000 compounds, of which about 4,000 products have been put on the market and obtained more than 700 domestic and foreign invention patents. It has achieved a leading position in the industry in various product fields such as liquid crystal materials, zeolite series environmentally friendly materials, OLED materials, etc., and has actively deployed in various fields such as polyimide materials, semiconductor manufacturing materials, and new energy materials, laying a good foundation for the company's future. With environmental protection issues receiving widespread attention, the company's new materials are promising. The company's projects such as Penglai Phase I, Jiumu Chemical A04, and March Technology's high-end production base are progressing steadily, and promoting the construction of 300 tons of zeolite zeolite molecular sieve production capacity in new fields. R&D and production capacity continue to increase, and we are optimistic about the company's sustainable development.

Investment advice

Due to declining downstream demand and other reasons, we expect the company's net profit to be 0.477, 0.657, and 0.835 billion yuan (previous values were 0.797, 0.922, and 1.077 billion yuan), respectively, with year-on-year growth rates of -37.5%, 37.9%, and 27%, respectively. The corresponding PE is 16, 12, and 9 times, respectively. Maintain a “buy” rating.

Risk warning

(1) Downstream demand falls short of expectations.

(2) Risk of fluctuations in raw material prices.

(3) The commissioning of the new project fell short of expectations.