Incidents:

The company released its 2024 semi-annual report. 2024H1 achieved operating income of 3.427 billion yuan, an increase of 30.36% year on year; the company achieved net profit of 1.026 billion yuan to mother, an increase of 40.26% year on year. Among them, in the 24Q2 single quarter, the company achieved operating income of 1.864 billion yuan, up 29.42% year on year and 19.20% month on month; net profit to mother was 0.593 billion yuan, up 44.12% year on year and 36.86% month on month. The company's profitability increased significantly. In 24Q2, it achieved a gross sales margin of 43.37% in a single quarter, an increase of 3.38 pcts year-on-year, and an increase of 3.23 pcts month-on-month.

Demand is picking up, and the electronic component materials business is growing rapidly

In the first half of 2024, the consumer electronics and communications markets gradually recovered, and demand continued to improve. The company's 2024H1 electronic component materials business revenue reached 1.444 billion yuan, a rapid year-on-year increase of 56.71%.

With the increase in the operating rate and the steady recovery of product prices, the gross margin of the company's business reached 39.82%, an increase of 10.16 pcts over the previous year. The company's MLCC products continue to develop further in the direction of miniaturization, high capacity, high frequency, high reliability, high pressure, etc., and continue to provide customers with high-value products and solutions, which are expected to fully benefit from the recovery of the industry.

The communications industry is developing rapidly, and the company keeps pace with the times

Emerging digital services, mainly data centers, cloud computing, big data, and the Internet of Things, are developing rapidly, and the structure of the communications industry is constantly changing. According to market demand, the company adjusts product strategy plans in due course, continuously carries out new product research and development, process improvement and cost control, continues to expand new specifications, develop product solutions adapted to market changes, meet customer needs, consolidate product market position, and maintain the steady development of the communication components business. With 2024H1, the company's optical communication component revenue reached 1.221 billion yuan, an increase of 30.99% over the previous year. With the accelerated construction of the company's Chengdu and Suzhou Sanhuan Research Institute, R&D capabilities are constantly being strengthened, and it is expected that new products and service solutions will continue to be introduced to customers.

Investment advice:

We expect the company's revenue growth rates from 2024 to 2026 to be 29.17%, 33.35%, and 20.05%, respectively, and net profit growth rates of 36.09%, 28.33%, and 21.48%, respectively. We maintain the company's buy-A investment rating, with a 6-month target price of $33.60, which is equivalent to a dynamic price-earnings ratio of 30.00x in 2024.

Risk warning: downstream demand falls short of expectations; customer expansion falls short of expectations; risk of fluctuations in raw material prices; risk of exchange rate fluctuations.