Incident: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.185 billion yuan, -3.62% YoY; net profit to mother 0.019 billion yuan, -18.82% YoY. Among them, in 24Q2, the company achieved operating income of 0.108 billion yuan, +6.09% year on year; net profit to mother was 0.016 billion yuan, -1.59% year over year.

The gross margin was fixed, and the payment of termination compensation put pressure on net profit margins. 2024H1's gross sales margin and net sales margin were 35.92% and 9.4%, respectively, compared to 2023H1, +4.93pct and -2.26pct, respectively. Despite a significant increase in the price of the company's raw materials in the first half of 2024, gross margin increased. The decline in net interest rates was mainly due to a sharp increase in management expenses. 2024H1's sales expenses, management expenses, and financial expenses all changed significantly compared to 2023H1, which were 4.459 million, 29.216 million, and -1.796 million, respectively, +75.15%, +30.8%, and -33.93%, respectively. Among them, the company's Shanghai workshop relocation paid termination compensation, which led to a significant increase in management expenses.

Operating cash flow improved markedly, and 0.9066 million shares were repurchased. Due to 2024H1, the net cash flow from the company's operating activities was 7.951 million yuan, an increase of 618.40% over the previous year due to higher pre-receipt of customer payments and fewer payment payments. Furthermore, on February 8, the company reviewed and passed the “Proposal on the Plan to Repurchase the Company's Shares through Centralized Auction Transactions”. By the end of June, the company had repurchased 0.9066 million shares of the company's shares through centralized bidding, totaling 10.288 million yuan, demonstrating the company's confidence in future development.

Maintaining a high proportion of R&D investment, all R&D is progressing smoothly. With 2024H1, the company invested 14.851 million yuan in R&D, accounting for 8.05% of revenue, an increase of 0.23 pct over the previous year. Among them, the company has completed expert on-site production capacity tests on key technologies and industrialization of high-performance mixed substrates RO/NF. Progress has also been made in membrane lithium extraction processes, nickel-cobalt-manganese extraction processes, and recycling and treatment processes for related by-products, which helps the company continue to maintain its competitive advantage in membrane materials and composite products.

Investment advice and valuation: Referring to the company's interim report, we slightly lowered the company's profit forecast. We expect the company's revenue from 2024 to 2026 to be 0.418 billion yuan, 0.475 billion yuan, and 0.527 billion yuan respectively. Revenue growth rates will reach 8.9%, 13.6%, and 10.9% respectively. Net profit to mother will be 0.047 billion yuan, 0.058 billion yuan, and 0.064 billion yuan, respectively. Net profit growth rates will reach 1.7%, 24.9% and 10.2%, maintaining the “increase in holdings” investment ratings.

Risk warning: Market competition increases risk, risk of project construction falling short of expectations, risk of multinational supply of raw materials, etc.