Event: On August 28, Sinopec released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 0.644 billion yuan, an increase of 0.10% year on year; realized net profit of 0.063 billion yuan, an increase of 80.89% year on year; realized net profit of 0.045 billion yuan after deduction, an increase of 48.42% year on year.

Industry-leading thermal solutions provider, the profitability of new projects continues to recover. The company's main products include high thermal conductivity graphite products, thermal interface materials, heat pipes, heat evaporation plates, thermal modules, EMI shielding materials, adhesive materials and sealing materials, etc., which are widely used in high-growth industries such as consumer electronics, digital infrastructure, intelligent transportation, and clean energy. According to a report published by Japan's Fuji Keizai Publishing, the company is a leading global company for artificially synthesizing high thermal conductivity graphite films, with a complete range of categories and leading technology. In the first half of 2024, the company's net profit growth rate was impressive, with a year-on-year increase of 80.89%. The main reasons were: market demand in the consumer electronics industry picked up, the company's major customers increased the usage of cooling materials for new terminal products in spring, and the company's supply product structure was optimized. At the same time, the company continued to promote cost reduction and efficiency measures such as lean production and process improvement to achieve gross margin restoration; during the reporting period, the company improved asset quality and enhanced the company's profitability. Looking at a single quarter, the company achieved revenue of 0.345 billion yuan in 2024Q2, up 4.47% year on year and 14.99% month on month; net profit to mother was 0.033 billion yuan, up 141.21% year on year, up 8.93% month on month.

Adhere to the long-term development strategy of the four major application areas and actively expand products and customers. 1) Consumer electronics industry: Under the leadership of the generative AI wave, the penetration rate of AI phones and AI PCs continues to increase, bringing higher computing power and higher energy efficiency, which in turn spawns demand for cooling performance. The gradual enrichment of other terminal forms has also brought a full increase in cooling demand. Currently, the company has basically achieved full coverage of leading customers in the 3C industry. In the first half of 2024, the company's high-conductivity graphite component products will be used in next-generation tablets for major North American customers. Looking forward to the second half of the year, the amount of stand-alone cooling materials used by major North American customers will increase compared to the previous generation models.

2) Digital infrastructure industry: In recent years, the company has expanded from a simple communication business to a digital infrastructure business, covering all aspects of terminal electronic equipment related to digital information collection, transmission, storage and processing.

The company has now supplied many domestic and foreign hardware equipment companies in batches. In the first half of 2024, the company's hot plate products obtained 800G high-speed optical module product certification and mass production from leading overseas optical communication companies and a domestic optical communication company. 3) Intelligent transportation industry: Specific application scenarios include battery packs, ADAS, smart cockpits, etc. The company has now obtained supplier codes from many automakers and parts companies, and some projects have been developed and delivered in batches. 4) Clean energy industry: Currently, the company has developed in-depth cooperation with leading companies in the industry in various fields such as photovoltaics and energy storage, and some have formed batch sales.

Based on independent research and development, the layout at home and abroad is dual-driven. In terms of technical strength: The company always insists on independent research and development, with technology as the foundation. Through long-term continuous investment and accumulation in the technical field it is engaged in, it ensures that the company's R&D standards are always at the cutting edge of technology, leading the technological development of the industry in several directions. At the same time, the cross-integration of the company's various technical fields forms the company's unique technical competitiveness, can respond comprehensively and quickly, and provide comprehensive thermal management solutions. In terms of global layout: The company has industrial layout in the core regions of the global industrial chain: domestic: it has industrial bases in Wuxi, Yixing, Dongguan, etc., and R&D bases in Beijing, Shanghai, Wuxi, Yixing, etc.; overseas: it has an industrial base in Thailand, an engineering center in the US, and branches or sales teams in overseas regions such as Singapore and South Korea to provide high-quality products and services to world-renowned customers. In addition, the company lays out production bases globally, and production capacity in East China, South China, and Southeast Asia backs up each other, which can cope with delivery pressure brought about by various unexpected situations. Through a global layout, the company can achieve production close to key customers, enhance the core competitiveness of delivered products, and continuously expand overseas business.

Profit forecast and investment rating: The company's net profit for 2024-2026 is expected to be 0.126/0.194/0.281 billion yuan respectively, and the current stock price is 40/26/18 times PE, respectively. We believe that as an industry-leading thermal solution provider, the company will continue to expand products and customers in the four major application fields by creating comprehensive solutions with high reliability. In the future, it is expected that cooling demand will continue to benefit from the accelerated implementation of generative AI terminal equipment. At the same time, it is expected to expand further through domestic and foreign two-wheel drive Overseas markets maintain a “buy” rating.

Risk warning: Industry competition increases risk, customer expansion falls short of expectations, risk of raw material price fluctuations, risk of macroeconomic fluctuations.