Brief performance review

On August 30, 2024, Hongchuan Wisdom released its 2024 semi-annual report. 2024H1 achieved revenue of 0.74 billion yuan, down 4.8% year on year; net profit to mother was 0.13 billion yuan, down 17% year on year; of these, Q2 company achieved revenue of 0.36 billion yuan, down 10.4% year on year; net profit to mother was 0.07 billion yuan, down 20.3% year on year.

Management analysis

Demand in the petrochemical industry was weak, and 2024H1 revenue declined year over year. 2024H1 achieved revenue of 0.74 billion yuan, a year-on-year decrease of 4.8%, mainly due to weak market demand in the petrochemical industry, and the company's business did not meet expectations. By business, 2024H1 terminal storage tank integrated service revenue was 0.64 billion yuan, down 7% year on year; chemical warehouse integrated service revenue was 0.039 billion yuan, down 3.75% year on year; transit and other service revenue was 0.029 billion yuan, up 33.17% year on year.

2024H1 profitability declined, and the expense ratio increased year over year during the period. 2024H1 achieved a gross profit margin of 52.2%, a year-on-year decrease of 7.2pct. Among them, the 2024H1 terminal storage tank integrated service gross margin was 51.9%, a year-on-year decrease of 7.2 pcts. The 2024H1 company's cost rate for the period was 32.4%, up 2.6 pct year on year, of which the sales expense ratio was 2.5%, up 0.2 pct year on year; the management expense ratio was 9.7%, up 1.1 pct year on year; the R&D expense ratio was 3.3%, up 1.5 pct year on year; and the financial expense ratio was 16.9%, down 0.2 pct year on year. The decline in gross margin was compounded by the increase in the expense ratio. The net profit margin of 2024H1 company was 18%, down 2.7 pct from the previous year.

Adhere to the path of mergers and acquisitions, and share repurchases protect shareholders' interests. The new supply in the petrochemical warehousing industry is limited, and the company adheres to the growth path of mergers and acquisitions. In May 2024, the company acquired 60% of Arashiyama Fubao's shares for 0.117 billion yuan through its wholly-owned subsidiary Sanjiang, Dongguan. The company has 50 storage tanks with a total tank capacity of 0.1838 million cubic meters. It has now changed its name to Rizhao Hongchuan. This is the first time it has acquired shares in a subsidiary of an international company, laying the foundation for international development. Based on confidence in the industry's prospects and its own development, the company implemented share repurchases from June 6 to August 22, 2024. The cumulative number of shares repurchased reached 2.7884 million shares, all of which were used to reduce registered capital and help protect the interests of all shareholders.

Profit Forecasts, Valuations, and Ratings

The company's 2024-2026 net profit forecast was lowered to 0.25 billion yuan, 0.33 billion yuan, and 0.44 billion yuan (original 0.39 billion yuan, 0.47 billion yuan, 0.58 billion yuan) to maintain the “buy” rating.

Risk warning

New project performance falls short of expectations, safety management risks, stock pledge risks, and goodwill impairment risks.