Interim results: H1 achieved revenue of 0.205 billion yuan, yoy +14.1%; net profit to mother 0.037 billion yuan, yoy -3.3%; deducted non-net profit of 0.033 billion yuan, yoy -0.3%. Among them, Q2 achieved revenue of 0.117 billion yuan, yoy +16.2%, +32.6% month-on-month; realized net profit to mother 0.02 billion yuan, yoy -7.6%, or +18.6% month-on-month.

Revenue is growing steadily, and iron powder climbing down the slope is dragging down profitability

On the revenue side, the company's H1 achieved revenue of 0.205 billion yuan, yoy +14.1%, and carbonyl iron powder/atomized alloy powder/soft magnetic powder/MIM feed achieved revenue of 5.9/2.4/7.3/3.9 kW respectively. They all achieved year-on-year growth, and the soft magnetic powder & MIM feeders started significantly. Revenue of 0.117 billion yuan was achieved in Q2 '24, +32.6% month-on-month. We believe it was mainly driven by continuous improvement in consumer electronics demand and incremental demand for automotive electronics. Looking ahead to H2, it is expected that the increase in iron powder shipments will gradually be realized, and products such as folding screen powder will be launched. We believe that H2's revenue is expected to continue to grow.

On the profit side, the company's 24-year H1 gross profit margin was 34.75%, yoy-2.57pct; Q2 single-quarter gross profit margin was 34.55%, -0.46pct month-on-month. H1 net profit margin 17.79%, yoy-3.17pct, Q2 net profit margin 17.08% in a single quarter, -1.64pct month-on-month. Profitability has declined, mainly due to the consolidation of projects under construction, but the production capacity for iron powder is still climbing. Depreciation expenses have increased. At the same time, related taxes and surcharges have increased due to the increase in real estate and land. Wait until the scale effect of H2's iron powder fund-raising shows a boost to profitability.

Production capacity has been planted for 23 years, and 24-year results are expected to be realized at an accelerated pace

The company's IPO raised 6,000 tons of iron carbonyl powder project at the end of 23Q3. Currently, production capacity is climbing, and production capacity can be gradually released according to market demand. Without considering new projects, the production capacity of carbonyl iron powder will double from 5,500 tons to 11,500 tons after raising capital; at the same time, 4,000 tons of high-performance powder production capacity will be added, including 2,000 tons of soft magnetic powder for powder cores. The commissioning of the fund-raising project will help the company break through production capacity bottlenecks and focus on optimizing the product structure at the middle and high-end. The scale effect will also be highlighted. The company is expected to fully benefit from MIM replacement changes and the boom in integrated inductors. Looking ahead, the production capacity of the 10wt new process project at the Ningxia base has been released one after another, and the net profit is expected to be about 0.59 billion yuan after full delivery in '29, opening up room for growth.

Investment advice: As a leader in carbonyl iron powder, the company's new business expansion, new product development, new process expansion, and new production capacity release, performance is expected to accelerate after the scale effect is revealed. The net profit for 2024-2026 is expected to be 0.111/0.15/0.203 billion yuan, respectively, corresponding to the closing price of PE on September 2, 22/17/12 times, respectively, maintaining a “buy” rating.

Risk warning: risk of demand fluctuations; risk of new project construction falling short of expectations; risk of fluctuations in raw materials; risk of process technology innovation; risk of new business development falling short of expectations.