Description of the event

On August 27, 2024, Lanxiao Technology released its 2024 semi-annual report. The company 24H1 achieved operating income of 1.295 billion yuan, a year-on-year increase of 28.50%; achieved net profit due to mother of 0.404 billion yuan, a year-on-year increase of 16.79%, and a year-on-year increase of 30% after deducting the impact of exchange gains and losses; and realized net profit after deducting non-return to mother of 0.393 billion yuan, an increase of 16.41% year on year. 24Q2 achieved revenue of 0.664 billion yuan in a single quarter, up 30.98% year on year and 5.18% month on month; realized net profit of 0.235 billion yuan, up 10.75% year on year and 38.90% month on month; realized net profit without return to mother of 0.227 billion yuan, up 9.23% year on year and 37.48% month on month.

Basic business revenue increased, with adsorption materials as the core driving force

The company's 2024Q2 performance improved significantly compared to Q1. The main reason was that the company's “basic warehouse” business maintained a good trend, production and sales of adsorbent materials increased dramatically, and revenue from the Salt Lake lithium extraction project was steadily confirmed. The company's operating income is mainly composed of extraction materials, system equipment and technical service segments. Among operating income, revenue from adsorption materials was 0.974 billion yuan, accounting for 82%, up 33.43% year on year. It was the core driving force for the company's performance growth. More than 80% of this was contributed by metal resources, life sciences, water treatment and ultra-purification businesses. The three sectors continued the good growth trend, and revenue increased 45%/33%/30% year over year. In addition, business performance in food processing, energy saving and environmental protection, chemicals and catalysis has also increased. The comprehensive gross profit margin of the six major adsorption materials sectors was 51.03%, +1.54PCT compared to the previous year, reflecting the high technical content and high added value advantages of the company's products. Production and sales of adsorbent materials increased dramatically during the reporting period, reaching 0.0316 million tons/0.0308 million tons, an increase of 27%/35% year-on-year, continuing the good growth trend against the backdrop of severe external environment and product price fluctuations.

Various fields of “basic warehouses” are booming, and the prospects for the core sector are good. The company continues to expand its business in the field of new energy metal resources, signing a number of industrialization projects in the field of extracting metals nickel, cobalt, vanadium, etc., maintaining a high market share in the field of gallium extraction, and continuing to replace foreign brands in the field of uranium extraction; the life science sector is driven by a sharp increase in sales of downstream GLP-1 polypeptide drugs. According to Sullivan's analysis, the global GLP-1 drug market will grow to 28.3 billion US dollars in 2025, and 40.7 billion US dollars in 2030. The biotechnology sector is expected to maintain a high growth rate; the water treatment sector is expected to maintain a high growth rate; the water treatment sector It will explore the stock market and increase market penetration rate.

The Salt Lake lithium extraction project has yielded steady results. The whole line service shows technological leadership in terms of major projects. The company is leading the world in lithium extraction technology from salt lake brine. Many projects are in the harvest period, and new orders are continuously being signed, continuing to provide positive contributions to performance. During the reporting period, Salt Lake lithium extraction system devices achieved operating revenue of 0.099 billion yuan, an increase of 8% over the previous year, accounting for 34% of the system equipment sector's revenue. During the reporting period, the price of lithium metal was relatively low. According to Baichuan Yingfu data, the average monthly price for 24H1 fell 65% compared to 23H1, but the company relied on the cost advantage of the salt lake lithium extraction technology route and the increase in new orders to maintain performance; the average monthly price of lithium metal rose 5% month-on-month compared to Q1, and downstream prosperity rebounded. After deducting the Salt Lake lithium extraction project, the company's basic business achieved total revenue of 1.196 billion yuan, a significant increase of 31% over the previous year. At present, the company has completed and implemented more than 15 industrialization projects for lithium extraction in salt lakes. Compared with 23, more than 3 new projects were added during the reporting period; the total production capacity of lithium carbonate/lithium hydroxide was nearly 0.1 million tons, an increase of nearly 0.014 million tons; 6 of these projects have been successfully put into operation, adding 1 more.

The core sector has broad prospects, and production capacity provides a solid guarantee

Emerging markets such as life sciences, drinking water, new energy, and carbon emissions around the world are increasing adsorption and separation materials. The rapid development of the domestic manufacturing industry has also increased domestic replacement demand for key upstream consumables, while the supply-side international production capacity supply cycle is long. Taken together, the company has a broad market space, and the competitiveness of the industry will be further enhanced with the gradual release of new production capacity. Currently, the company has a production capacity of 50,000 t/a resin adsorption and separation materials, which are mainly used in metal extraction and other fields. The production capacity of chromatographic filler/chromatographic media adsorption and separation materials is 70,000 L/a, mainly used in food, medicine and other fields. On July 30, '24, the company's shareholders' meeting passed a bill. Its wholly-owned subsidiary Pucheng Lanxiao plans to invest in the purchase of land use rights and plans to build 0.02 million tons of high-end material production capacity to meet the needs of the high-end application market, cover high-value-added separation materials such as ultrapure water and food, and further expand production capacity. In addition, new energy metal adsorption and separation materials production system expansion, R&D center and technical marketing and service center projects are also under construction.

Investment advice

We expect the company to achieve net profit of 0.973, 1.212, and 1.454 billion yuan respectively from 2024 to 2026, with year-on-year increases of 35.6%, 24.6%, and 20.0%, respectively, corresponding PE of 21, 17, and 14 times, respectively. Maintain the company's “buy” rating.

Risk warning

(1) Accounts receivable recovery risk;

(2) Risk of changes in downstream application areas;

(3) The international situation and the risk of exchange rate fluctuations;

(4) Risk of changes in industry policies.