Event: Company releases 2024 semi-annual report

Profitability increased significantly, and developed and expanded into emerging international markets: 24H1 achieved revenue of 0.64 billion yuan, net profit of 0.04 billion yuan after deducting non-return income of 0.04 billion yuan, a net sales margin of 9.6%, an increase of 4.3 pct; 24Q2 achieved revenue of 0.34 billion yuan, an increase of 4.5%, a net sales margin of 9.4%, and an increase of 5.4 pcts. The performance growth rate was impressive. Net profit of 24H1 and 24Q2 was 0.06 billion yuan and 0.03 billion yuan respectively, up 80.9%/141.2% year on year, mainly due to 1) the recovery in market demand in the consumer electronics industry; 2) the company's major customers increased the amount of cooling materials used in new terminal products in spring and the release of new projects; 3) the company's supply product structure was optimized; 4) The company continued to promote cost reduction and efficiency measures such as lean production and process improvement to achieve gross margin restoration; 5) The company improved asset quality and enhanced the company's profit margin; 5). Competence. 24H1's overall gross margin was 41.2%, up 11.7pct year on year; sales/management/ R&D expenses ratio was 4.8%/7.8%/5.8%, year-on-year, +1.2pct/+0.7pct/-0.3pct; 24Q2 gross profit margin was 39%, up 10.8pct; sales/management/R&D expenses ratio was 4.5%/7.7%/5.7%, +0.8pct/+0.4pct/-0.6pct year-on-year. The increase in the sales expense ratio is mainly due to the increase in expenses related to the expansion of international markets and emerging market development and sales teams.

The four major segments provide complete solutions and serve leading customers in the industry: advanced thermal management functions, electromagnetic shielding and bonding, and sealing together form the company's comprehensive electronic equipment reliability solution. Through continuous R&D investment, the company has established independent R&D teams and experimental platforms in various technical fields such as synthetic graphite technology, thermal interface material technology, heat pipes, heat transfer plates, and thermal module technology, forming a high technical barrier. The company adheres to the big customer market strategy, always takes the top 5 major customers in the industry it serves as the main target customer service, and has basically achieved full coverage of leading customers in the 3C industry. In the first half of the year, the company's high thermal conductivity graphite module products were used in next-generation tablets for major North American customers, and all hot plate products obtained 800G high-speed optical module product certification and mass production from leading overseas optical communication companies and a domestic optical communication company.

The consumer electronics industry is emerging, and AI helps business growth: the company's major customers increased the amount of cooling materials used in new terminal products in spring, the volume of new projects released, and the product structure of the company's supply was optimized. Under the wave of generative AI, AI terminals began to flourish. The penetration rate of “AI+” consumer electronics products, AI phones, AI PCs, etc. is gradually increasing. At the same time, new wearable devices such as AI PINs and AI glasses have also begun to emerge, and terminal products are becoming more and more diverse, bringing a full increase in cooling demand. The booming development of AI terminals is expected to drive the consumer electronics industry into a new growth cycle and bring new development opportunities to the company.

Profit forecast and investment rating: As a leading company in graphite products with high thermal conductivity, the company is expected to benefit from the rapid growth of the terminal product market in consumer electronics, digital infrastructure, intelligent transportation, clean energy, etc., as well as the development and penetration of AI technology, driving demand growth in the cooling industry. We maintain profit forecasts. The net profit to the mother is expected to be 0.14/0.21/0.3 billion yuan in 2024-2026. The current market value of PE is 35/23/15 times, maintaining a “buy” rating.

Risk warning: the risk of a changing macro environment, the risk of high customer and industry concentration, the risk of exchange rate fluctuations, and the risk of increased market competition.