1H24 results are in line with market expectations

The company announced 1H24 results: 1H24 achieved operating income of 0.291 billion yuan, YoY -7.81%; realized net profit of 0.105 billion yuan, YoY -49.95%; realized net profit of 0.093 billion yuan after deduction, YoY -49.43%. Looking at a single quarter, 2Q24 achieved operating income of 0.144 billion yuan, YoY +32.31%, and QoQ -1.75%; realized net profit of 0.045 billion yuan, YoY -25.23%, and QoQ -23.32%. The company's performance is in line with market expectations.

Development trends

Downstream demand pace adjustments put pressure on performance in the short term, and increased depreciation from the commissioning of new production lines led to a decrease in profitability.

1) 1H24's carbon fiber/carbon fiber fabric achieved operating income of 0.196/0.094 billion yuan, YoY -20.83%/+39.57%, and gross margin of 62.11%/57.99%, respectively. 2) 1H24's gross margin/net margin decreased by 17.01/30.31ppt to 60.63%/35.98%, respectively. We believe that the significant decrease in gross margin was mainly due to increased depreciation due to the increase in depreciation due to the conversion of some new production lines in the Phase III project and the commencement of production; the year-on-year decline in net profit margin was higher than that 1H23 received 0.04 billion yuan in government subsidies.

The cost rate was controlled reasonably during the period, and R&D verification continued to advance. 1) The 1H24 company's expense ratio increased by 0.20ppt to 23.40% year on year, and the cost rate control is still reasonable in the context of declining revenue scale. 2) 1H24's R&D expenditure rate increased by 2.14ppt to 19.61% year-on-year. During the reporting period, the company completed the verification of different types of raw wire in the Phase III project in the 100 ton line, 1000 ton line, and the oxidized carbonization line of the Phase III project, keeping up with the business needs of downstream customers and ensuring supply in key areas. We believe that the company's continued promotion of R&D and verification work is expected to continue to consolidate its core competitiveness in the high-end carbon fiber field.

Downstream demand is picking up steadily, and market expansion is expected to inject incremental growth. 1) According to the company's 2024 semi-annual report, the company continues to supply customers with next-generation carbon fiber products represented by ZT9H and ZT7H high-performance carbon fiber products. ZT9H has passed assessment, verification and review in a major application field and has entered batch production and supply; the number of products delivered by the company has increased markedly in the past two months, showing a significant recovery trend. 2) We believe that the company's technological and resource advantages are stable. With the recovery in the pace of downstream customer demand and new contributions from downstream fields such as commercial aviation and low-altitude economy, the company can be expected to grow for a long time as a core supplier of high-end carbon fiber.

Profit forecasting and valuation

We maintain our 2024/2025 profit forecast of 0.302/0.366 billion, and the current stock price corresponds to 2024/2025 29.6/24.4x P/E. We maintain our outperforming industry rating, but considering the recent decline in the industry valuation center, we lowered our target price by 14.2% to 24.98 yuan, corresponding to 36.3/30.0x P/E in 2024/2025, with a potential increase of 22.90%.

risks

1) Risk of product price adjustment; 2) Risk of orders and delivery falling short of expectations.