Incidents:
The company released its 2024 semi-annual report. In the first half of the year, it achieved operating income of 0.74 billion yuan, an increase of 7.84% year on year; net profit to mother of 97.3503 million yuan, up 35.86% year on year; net profit after deducting non-return to mother of 66.115 million yuan, an increase of 36.94% year on year.
High-end field expansion+cost reduction and efficiency, and performance increased significantly in the first half of the year:
The company's sales revenue maintained a steady growth trend in the first half of the year. The profit growth rate was significantly higher than the revenue growth rate, mainly benefiting from the increase in the gross margin of the company's membrane products and the reduction in cost ratio pressure. The company's membrane products achieved sales revenue of 0.491 billion yuan in the first half of the year, up 13.47% year on year. With the continuous improvement of the company's membrane separation technology, the product application field continued to expand into high-end segments such as seawater desalination, zero emissions, salt lake lithium extraction, electronic ultrapure water, etc., and the customized service level continued to improve, driving the profitability of the company's membrane product sales business to continue to increase. The gross margin of the sector reached 40.05% in the first half of the year, an increase of 1.5% over the same period last year. At the same time, the company's cost control results were remarkable. Management expenses in the first half of the year were 524.683 billion yuan, a year-on-year decrease of 18.02%, and the management expense ratio was 7.09%, a year-on-year pressure drop of 2.24 pcts. In addition, the company's Chavin Phase III project was successfully put into operation last year. The design capacity was increased from 23.3 million square meters to 28.1 million square meters, breaking through the capacity limit. According to the company's public investor relations activity records, with the continuous upgrading of equipment technology and improvements in production processes, the company's original actual production capacity is being further released, and the company's capacity utilization rate reached 116.9% in 2023.
The membrane separation business has signed sufficient new orders, and the second largest growth rate is expected to maintain a high level of growth:
The company has a rich range of membrane products, suitable for various downstream application scenarios. Relying on the advantages of membrane material R&D and manufacturing technology in recent years, it has expanded the promotion and application of membrane separation technology in the fields of advanced water resource treatment and material concentration and separation, providing customers with specialized and customized comprehensive solutions, including membrane material development and customization, application process development and program design, equipment installation and construction, operation and maintenance services. According to the company's announcement, from January to June 2024, the company signed a total of 0.454 billion yuan in new membrane separation engineering business contracts, including 0.397 billion yuan in the salt lake lithium extraction sector and 52.4404 million yuan in membrane industrial wastewater treatment and resource utilization orders for iron phosphate. The company's revenue from the membrane separation business in 2023 was only 0.184 billion yuan. In the context of sufficient new orders, it is expected that the company's business segment will further accelerate growth this year.
Domestic replacement space for reverse osmosis membranes is vast, and consumable properties ensure stable replacement requirements:
The company's main product, reverse osmosis membrane, has a wide range of downstream applications, including preparation of pure drinking water, food and beverage, municipal water supply treatment, ultrapure water in the electronics industry, seawater desalination, and zero discharge of high-salt wastewater. High-end membrane products focus on high throughput, high water saving, pollution resistance, and long life, and have high industry thresholds and technical barriers. China's reverse osmosis membrane market relies on imported overseas leaders such as US Dow, Japan's Toray, and Hyde Energy. With their rich industry experience and advanced R&D and production technology, they still occupy most of China's reverse osmosis membrane market share. The current market share of domestic reverse osmosis membranes is low, and there is plenty of room for domestic replacement. Since the membrane process is technically difficult and plays a key role in water treatment, the performance of the membrane directly affects the salinity effect. The company has been deeply involved in the membrane field for decades, and reverse osmosis membrane process technology has been continuously improved. It has first-mover advantages and brand advantages in domestic brands, and is expected to benefit first in the domestic substitution process. In addition, membrane components need to be replaced regularly, and the replacement cycle is generally three years, so the demand for consumables is highly sustainable, supporting the company's performance improvement.
Investment advice:
We expect the company's revenue for 2024-2026 to be 2.087 billion yuan, 2.544 billion yuan, and 2.99 billion yuan respectively, with growth rates of 22.4%, 21.9%, and 17.5% respectively, and net profit to mother of 0.203 billion yuan, 0.232 billion yuan, and 0.268 billion yuan respectively, with growth rates of 23.1%, 14.6%, and 15.4% respectively.
Maintain the buy-A investment rating and give 20xPE in 2024, with a 6-month target price of 8.6 yuan.
Risk warning: Increased market competition, domestic substitution process falling short of expectations, developing emerging markets falling short of expectations, fluctuating raw material prices, falling short of expectations, etc.