Event: The company released its 2024 semi-annual report. In 2024 H1, the company achieved operating income of 3.75 billion yuan, a year-on-year decrease of 7.34%; net profit to mother was 0.144 billion yuan, a year-on-year decrease of 28.47%. In Q2 2024, we achieved revenue of 1.802 billion yuan in a single quarter, a year-on-year decrease of 15.71% and a decrease of 7.44% month-on-month; net profit to mother was 0.066 billion yuan, a decrease of 32.95% year-on-year and a decrease of 16.44% month-on-month.

24H1's profit declined year on year, and gross margin remained flat year on year. In the modified plastics business, 24H1's general-purpose modified materials and engineering-modified materials products achieved revenue of 1.62 and 0.758 billion yuan respectively, with year-on-year changes of +13.79% and -3.09%, respectively. Gross margins were 15.70% and 26.30%, respectively, with year-on-year changes of 0.0 and +0.1 pct, respectively. In terms of the new energy battery business, 24H1's ternary cylindrical lithium-ion batteries, lithium iron phosphate lithium-ion batteries, polymer soft-pack lithium-ion batteries, and nickel-based batteries achieved revenue of 5.52, 0.283, 0.001, and 0.011 billion yuan respectively, with year-on-year changes of +58.82%, -71.60%, -25.29%, and +0.68%, respectively. The gross margins were 1.35%, 2.50%, 56.56%, and -6.38%, respectively. In terms of cost ratios, 24H1's sales, management, R&D, and finance expenses rates were 1.71%, 2.82%, 5.84%, and 1.09%, respectively, with year-on-year changes of +0.57, +0.58, +0.71, and +0.09pct, respectively.

New energy battery production capacity will be gradually released, and investment in sodium-ion battery research and development will continue to be increased. Highstar Power is a leading domestic new energy company. The company currently has a three-element cylindrical lithium battery production capacity of 2.83 GWh/year, a square lithium iron phosphate battery production capacity of 1.19 GWh/year, a sodium/lithium ion battery collinear production capacity of 1.3 GWh/year, and a total battery production capacity of 10 GWh/year. It is compatible to produce sodium/lithium ion batteries, and has good flexible production capacity. The Qidong base will be put into operation in the 3rd quarter of 2024, and the Zhuhai base will be put into operation in the fourth quarter of 2024. In addition, the company has been developing the sodium-ion battery industry since '22, and has successfully developed cylindrical sodium-electric products with a capacity of 1.3 Ah-20 Ah with a capacity of 5 specifications and square sodium-electric products with a capacity of 70 Ah-240 Ah with a capacity of 7 specifications, which can be used in portable energy storage, communication energy storage, electric forklifts, golf carts, tricycles, etc.

The leading position in the modified materials industry is stable, and the global supply chain layout is continuously optimized. The company has been deeply involved in the modified composite materials industry for more than 30 years and has become a leading enterprise in the modified materials industry. It has 6 new material production and manufacturing bases in Qingpu, Shanghai, Jinshan, Zhejiang, Jiaxing, Chongqing, Foshan, Guangdong, and South Carolina in the US. It has built a production capacity of 0.43 million tons and a production capacity of 0.2 million tons under construction. Among them, it has invested in the construction of a North China Pulitt intelligent manufacturing base for low-carbon polymer composites in Tianjin. The annual production capacity of the project is expected to be no less than 0.12 million tons, and the annual production capacity achieved through environmentally friendly recycled materials will not be less than 0.03 Million-ton, expected to be put into operation by mid-'25. In addition, the company has begun preparations to build production bases in Mexico and Thailand to continuously optimize the global supply chain layout.

Profit forecast, valuation and rating: As the overall decline in the price of individual battery products will continue, we have lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is expected to be 3.01 (down 63.2%) /3.33 (down 67.1%) /0.443 billion yuan, respectively. We are optimistic about the increase and release of the company's Haishida production capacity and the rapid increase in energy storage business volume, and maintain the “gain” rating.

Risk warning: Production capacity construction falls short of expectations, downstream demand falls short of expectations, and the risk of fluctuations in product and raw material prices.