Key points of investment:

The company's revenue grew steadily in the first half of 2024. In the first half of 2024, the company achieved operating income of 2.122 billion yuan, a year-on-year increase of 16.03%; net profit to mother 0.16 billion yuan, a year-on-year decrease of 27.45%; net profit after deducting 0.109 billion yuan, a year-on-year decrease of 9.08%. In the first half of 2024, the company achieved revenue of 0.221 billion yuan for electrical insulation materials, 0.717 billion yuan for new energy materials, 0.51 billion yuan for optical film materials, 0.535 billion yuan for electronic materials, and 0.078 billion yuan for environmentally friendly flame retardant materials. In the first half of 2024, Dongfang Insulation achieved operating income of 0.801 billion yuan, up 17.46% year on year, achieving net profit of 0.041 billion yuan, a year-on-year decrease of 62.04%; Dongcai New Materials achieved operating income of 0.559 billion yuan, up 3.87% year on year, and achieved net profit of 0.104 billion yuan, up 82.05% year on year; Jiangsu Dongcai achieved operating income of 1.265 billion yuan, up 46.83% year on year, and achieved net profit of 0.032 billion yuan, a year-on-year decrease of 42.01%; Shandong Shengtong achieved operating income of 0.216 billion yuan, a year-on-year increase of 17.99%, and achieved net profit of 0.002 billion yuan, an increase of 113.72%; Shandong Emont achieved operating income of 0.374 billion yuan, an increase of 32.57% year-on-year, and achieved net profit of -0.052 billion yuan, a year-on-year decrease of 108.57%.

The company is speeding up the construction of industrialization projects. In the first half of 2024, the company completed equipment commissioning and put into trial production, such as the “Optical Grade Polyester Base Film Project with an annual output of 25,000 tons”, the “Optical Grade Polyester Film Technology Transformation Project for Ultra-thin MLCC with an annual output of 20,000 tons”, and “3000 tons of ultra-thin polypropylene film per year - Line 1”.

The company plans to invest in the construction of an electronic material project for high-speed communication substrates with an annual output of 20,000 tons. On August 22, 2024, the company plans to invest 0.7 billion yuan in an electronic material project with an annual output of 20,000 tons for high-speed communication substrates. The project cycle is 24 months. After completion, it will form 5,000 tons of electron-grade low-dielectric loss thermosetting polyphenyl ether resin, 2,000 tons of electron-grade amorphous maleimide resin, 1,500 tons of electron-grade crystalline maleimide resin, 4,000 tons of electron-grade low dielectric loss active ester curing ester resin, 3,500 tons of electron-grade low-dielectric hydrocarbon resin, and 4000 tons of electronic-grade low dielectric loss phosphorus-containing flame retardant resin. It is expected to achieve an average annual sales revenue of about 2 billion yuan and a total annual profit of about 0.6 billion yuan. We believe this project is expected to strengthen the company's competitive advantage in the electronic materials sector.

Profit forecasting and investment ratings. We expect the company's 2024-2026 net profit of 0.391 billion yuan, 0.531 billion yuan, and 622 million yuan, corresponding to EPS of 0.44 yuan, 0.59 yuan, and 0.69 yuan, respectively. Referring to the valuation of comparable companies in the same industry, we believe that the reasonable valuation is 20-25 times PE in 2024, corresponding to a reasonable value range of 8.80-11.00 yuan, maintaining an superior market rating.

Risk warning: Production expansion projects fall short of expectations; downstream demand falls short of expected risk.