Incident: On August 29, 2024, the company released its 2024 semi-annual report, achieving revenue of 0.32 billion yuan, -15.00%; net profit to mother 0.072 billion yuan, -18.08% YoY; net profit after deducting 0.071 billion yuan, or -21.53% YoY. Among them, Q2 achieved revenue of 0.173 billion yuan in a single quarter, -6.33% YoY, +17.42% month-on-month; net profit to mother 0.029 billion yuan, -25.11% YoY, -30.72% month-on-month; net profit before deducting 0.027 billion yuan, or -37.77% YoY.

The sales volume and average price of the company's main products rebounded in the second quarter: according to the company's operating data, the sales volume of the main products, raw materials for hair dyes, monomers of special engineering materials, and plant protection materials: sales volumes for the first and second quarter were 398.58/424.83 tons, 49.78/56.18 tons, 94.97/45.07 tons, respectively, +6.59%, 12.86%, and -52.54%, respectively. Average price: The first and second quarter products in the three sectors were 0.2703/0.2902 million/ton, 0.287/0.3022 million/ton, and 0.1562/0.2128 million/ton, respectively, +7.38%, +5.29%, and +36.21%, respectively. Sales volume and prices of most of the company's main products have rebounded, so Q2's revenue in a single quarter was 0.173 billion yuan, +17.42% over the previous quarter.

Complete ownership of the subsidiary was achieved, and the new construction project was gradually completed and implemented: in the first half of 2024, the company achieved full shareholding in Dingli, Inner Mongolia, improved the layout of the industrial chain, and strengthened industrial collaboration. The 555-ton production capacity of two of the fund-raising project began trial production in mid-June, gradually expanding and climbing. It is expected to complete completion and acceptance in the first half of next year; the production capacity of the third workshop of 305 tons will begin trial production at the end of the year; and construction of the remaining production capacity will proceed according to plans and market conditions.

Investment advice: The company is a leading domestic manufacturer of raw materials for hair dyes. At the same time, it has a single production capacity for special engineering materials, with remarkable technical advantages. We expect the company to achieve operating income of 0.793/1.054/1.226 billion yuan in 2024-2026 and achieve net profit of 0.186/0.247/0.349 billion yuan. The corresponding PE is 21.03/15.90/11.23 times, respectively, and maintain the “increase” rating.

Risk warning: Market demand falls short of the expected risk; the company's new production capacity falls short of the expected risk; competition in the same industry intensifies the risk