Key points of investment:

The company released its 2024 mid-year report: During the reporting period, the company achieved revenue of 1.295 billion yuan (YoY +29%), realized net profit of 0.404 billion yuan (YoY +17%), and net profit of non-return to mother of 0.393 billion yuan (YoY +16%). It is worth noting that after deducting the impact of exchange gains and losses, the company's net profit to mother increased by about 30% year-on-year. Among them, 24Q2 achieved revenue of 0.664 billion yuan (YoY +31%, QoQ +5%), realized net profit of 0.235 billion yuan (YoY +11%, QoQ +39%), and net profit of 0.227 billion yuan (YoY +9%, QoQ +37%) in a single quarter. The results were at the center of the forecast. The company's gross sales margin for the 24Q2 single quarter was 49.44%, with year-on-month changes of +1.27pct and +4.02pct, net margin of 35.95%, and year-on-month changes of -6.09pct and +8.84pct, respectively. Profitability continues to increase as the share of revenue in the company's high-margin business segment increases.

The downstream application fields of adsorption materials have blossomed, and the two core sectors of life science, water treatment, and ultrapurification have maintained high growth. According to the company's operating data disclosure, 24H1's basic business revenue (excluding salt lake lithium extraction system devices) was 1.295 billion yuan (YoY +31%), and the growth momentum was obvious for many years; the revenue from the Salt Lake lithium extraction project was 0.099 billion yuan (YoY +8%). In the basic business, revenue from adsorption materials was 0.974 billion yuan, accounting for 82%; revenue from system devices was 0.19 billion yuan, accounting for 16%. Adsorption materials are the core driving force for the company's performance growth. By application areas, metal resources, life sciences, water treatment and ultrapurization, energy saving and environmental protection, food processing, chemicals and catalysis, and others achieved revenue of 1.21, 2.85, 3.23, 1.04, 0.025, 0.097, 0.018 billion yuan, respectively, with year-on-year changes of +45%, +33%, +30%, +18%, +40%, +44%, and +45%, respectively. In the life sciences sector, driven by the boom in the GLP-1 market, demand for solid phase synthesis carriers increased significantly. According to Eli Lilly's financial report, the global revenue of tirpotide 24H1 reached 6.658 billion US dollars, reflecting continued strong demand for this product. In the field of water treatment and ultra-purification, the company's market penetration rate has further increased with competitive product lines, shorter delivery cycles, and more flexible customer service, and it is expected that it will maintain a high growth rate in the future. On July 8, the company issued an announcement to invest in the construction of a high-end material manufacturing industrial park to increase high-quality production capacity and meet the market demand for high-value-added adsorption and separation materials such as ultrapure water and food.

Key projects are progressing on schedule, domestic and overseas market development efforts continue to be strengthened, and the company continues to lead the salt lake lithium extraction field. In 2024, the adsorption materials and system equipment for the SDIC Luo Potassium Project were successfully delivered in Q1; the first production line of the Guoneng Mining Final Chaka Project is being commissioned and tested. The project overcomes challenges such as high altitude, difficult construction and operation, and is expected to become the first industrial-grade “direct lithium extraction” benchmark project put into operation in Tibet; some of the equipment for the key project Hanak has been manufactured and is awaiting delivery, and a new system support contract has been added. As of the 2024 interim report, the company has completed and implemented more than 15 industrial lithium extraction projects in salt lake, with a total production capacity of nearly 0.1 million tons of lithium carbonate/lithium hydroxide, 6 of which have been successfully put into operation. At the same time, the company continues to strengthen the promotion of salt lake lithium extraction technology in the international market, establish a South American R&D center in Argentina to provide efficient, timely and localized technical services to a large number of customers in the “lithium triangle” region, and improve project development and implementation capabilities. Currently, the price of lithium resources is relatively low, but Salt Lake's direct lithium extraction technology route has significant cost advantages. The company has accumulated a wealth of pilot projects, providing potential for continuous order formation.

Investment analysis opinion: Maintain the company's 2024-2026 net profit forecast of 0.955, 1.193, and 1.454 billion yuan. The current market value corresponds to PE of 20, 16, and 13X, maintaining the “increase in holdings” rating.

Risk warning: 1) Industry competition increases risk; 2) risk of core technology leakage, loss of technical personnel and technology change; 3) risk of falling short of expectations in the industrialization of new technology.