The company released its 2024 mid-year report: During the reporting period, the company achieved revenue of 3.257 billion yuan (YoY +40%), achieved net profit attributable to mother 0.52 billion yuan (YoY +52%), and realized net profit of 0.526 billion yuan (YoY +51%) after deduction. Among them, 24Q2 achieved revenue of 1.638 billion yuan (YoY +31%, QoQ +1%), realized net profit of 0.274 billion yuan (YoY +62%, QoQ +11%), and achieved net profit of 0.287 billion yuan (YoY +47%, QoQ +20%), which is in line with expectations. 24Q2's gross sales margin was 37.78%, with year-on-month changes of +5.30pct and +7.28pct, net profit margin 17.09%, and +3.27pct and +1.62pct year-on-month respectively. The profit margin level increased steadily. In terms of expenses, 24Q2 sales, management, finance, and R&D expenses totaled 13.93%, with year-on-month changes of +1.88pct and +2.60pct, respectively. Among them, sales expenses were greatly dragged down, reaching 0.087 billion yuan, and an increase of about 0.04 and 0.036 billion yuan year-on-month. Furthermore, 24Q2's fair value change earnings resulted in a loss of 19.96 million yuan, accruing a credit impairment loss of 6.47 million yuan. 24H1 plans to distribute a cash dividend of 3.2 yuan (tax included) for every 10 shares to all shareholders.

The company issued an investment announcement: it plans to invest 0.897 billion yuan in the construction of an “electronic materials project with an annual output of 0.024 million tons” in Pengzhou City, Chengdu City, Sichuan Province. The specific products can be adjusted in time according to market conditions. The estimated project construction period is October 2023 to December 2025. The fundamentals of the electronics industry continue to be repaired. Technological iteration is driving the upgrading of copper clad plates and packaging materials, and demand for silicon powder fillers is increasing; power battery energy density is increasing, electronic devices are becoming complicated and miniaturized, and the demand for cooling upgrades is spawning the aluminum market space; I am optimistic that the implementation of this project will help the company develop rapidly in the field of powder materials.

The semiconductor cycle has picked up and entered an upward boom phase, the downstream utilization rate has remained high, and the company's electronic materials business such as precursors has returned to high growth. Over the past 24 years, the operating rate of global wafer factories has continued to pick up, industry fundamentals have continued to improve, and we have officially entered an upward boom cycle. As one of the main suppliers of semiconductor precursors in the world, the company's key customers Changxin, Changcun, and Hynix maintained a high operating rate. Customers such as SMIC, Samsung, Micron, and TSMC continued to increase, driving the precursor business back to a high growth state. Semiconductor-related businesses such as electronic specialty gas, silicon powder, and LDS equipment also benefited. According to the company's interim report, 24H1 semiconductor chemical materials, electronic specialty gas, silicon powder, and LDS achieved revenue of 9.19, 0.204, 0.116, and 0.134 billion yuan, respectively, with year-on-year changes of +43%, +1%, +38%, and +146%, respectively. The gross margins of each sector were 59.09%, 32.87%, 8.12%, and 45.98%, respectively, with year-on-year changes of +16%, +2%, -62%, and +11%, respectively. In terms of related subsidiaries, Korea's Xianke 24H1 achieved revenue of 0.948 billion yuan and net profit of 0.308 billion yuan; Comet achieved revenue of 0.244 billion yuan and net profit of 0.044 billion yuan (April discontinuation of production, maintenance and technical reform, trade method guarantee); Huafei Electronics achieved revenue of 0.118 billion yuan and net profit of 2.88 million yuan; Jacques Frey achieved revenue of 0.134 billion yuan and net profit of 0.042 billion yuan billion yuan; Jiangsu Xianke achieved revenue of 0.168 billion yuan and net profit loss of 10.33 million yuan. Looking ahead to 24H2 and beyond, the boom in the semiconductor industry is expected to continue, with capital expenditure in the superposition industry returning to growth. In particular, with the formal establishment of the third phase of the National Big Fund, which focuses on the accelerated expansion of domestic storage production, the company's business will usher in a wider market space, and the degree of fulfillment will continue to increase.

The panel photoresist and supporting reagent business has grown significantly. As the 24H2 consumer electronics season approaches, the business is expected to continue to exceed expectations in the context of domestic substitution. As the panel industry continues to shift to China, the localization of supporting materials is advancing at an accelerated pace. Empowered by AI innovation, it is expected that new models such as 24H2 Huawei and Apple are expected to drive the world into a wave of switching and drive an increase in demand for related materials. The company's panel photoresists cover major varieties such as TFT, RGB, OC, and PS, and the business has grown significantly over the past 24 years. At the same time, production capacity at Yixing's local photoresist plant has entered the gradual release stage, and the introduction of major clients such as BOE and Huaxing Optoelectronics will accelerate the development of the business. According to the company's interim report, 24H1 photoresist and supporting reagents achieved revenue of 0.858 billion yuan, a year-on-year increase of 53%, a gross profit margin of 19.26%, and a year-on-year increase of 44%. In terms of related subsidiaries, EMTIER achieved revenue of 0.814 billion yuan and net profit of 0.084 billion yuan. In addition, in terms of new products, the company's self-developed products such as low-temperature RGB photoresists for OLEDs, RGB photoresists for CMOS sensors, and L-line photoresists for advanced packaging RDL layers are being tested and introduced on the client side as planned.

Orders for LNG insulation panels have entered a centralized delivery period, and the performance is expected to continue to be realized. The promotion of film storage tanks in the future is a new hot spot in the business. Since 2022, the LNG ship market has exploded. In addition to Hankuk Carbon and Dongsung Finetec in Korea, the company is a major global supplier of LNG insulation panels. It has successively signed sales contracts with shipbuilding companies such as Hudong Zhonghua, Jiangnan Shipbuilding, and Dalian Shipbuilding, and the business ushered in explosive growth. According to the company's interim report, LNG insulation materials achieved revenue of 0.717 billion yuan, a year-on-year increase of 47%, a gross profit margin of 29.74%, a year-on-year decrease of 24%; leasing and engineering services achieved revenue of 0.116 billion yuan, a year-on-year decrease of 7%, and a gross profit margin of 27.64%, a year-on-year decrease of 24%. Looking ahead, the company completed the construction of intelligent production lines for RSB and FSB secondary shielding materials, and trial production was successfully carried out. It is expected that related products will be certified by GTT within the year, and profitability will be further enhanced after successful introduction. Looking forward to the future, with the rapid growth in global LNG trade volume, land-based LNG terminals and storage depots are another major market after LNG carriers, as well as ethane and other carriers, storage tanks, etc., all bringing broad room for growth to the company's insulation board business.

Investment analysis opinion: Considering that the Xianke project is still in the trial production, commissioning, and product verification stages, flame retardants continue to drag down the company's 2024-2026 net profit forecast to 1.05, 1.525, and 2.027 billion yuan (original values were 1.252, 1.84, and 2.382 billion yuan). The current market value corresponds to PE 24, 16, and 12X, respectively. According to Wind's unanimous expectations, the average PE of the company Dinglong Co., Ltd. and Nanda Optoelectronics maintained a “buy” rating.

Risk warning: 1) downstream demand falls short of expectations; 2) raw material prices have risen sharply; 3) industry competition has intensified.