Event: The company publishes its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 1.122 billion yuan, a year-on-year increase of 35.9%; achieved net profit of 0.179 billion yuan, a year-on-year increase of 17.4%; and realized net profit of 0.137 billion yuan after deduction, an increase of 21.7% over the previous year. With 2024Q2, the company achieved revenue of 0.613 billion yuan in a single quarter, up 43.3% year on year and 20.4% month on month; realized net profit to mother of 96.58 million yuan, up 25.0% year on year and 17.6% month on month.

Comment:

Significant growth in the gross margin of precursors was significant, and 24H1's performance increased steadily. In the first half of 2024, the company's electronic specialty gas business achieved revenue of 0.716 billion yuan, an increase of 16.1% year on year; the gross margin of the corresponding business was 46.5%, a slight decrease of 0.8 pct year on year; product sales volume was 5159 tons, an increase of 11.6% year on year. The phosphane mixture in 24H1's electronic specialty gas products has increased significantly. Although the gross margin of nitrogen trifluoride products has declined, both sales volume and sales growth have been achieved. In the first half of 2024, the company's precursor business (including MO sources) achieved revenue of 0.274 billion yuan, a year-on-year increase of 73.6%; the gross margin of the corresponding business was 48.5%, a significant increase of 12.9pct over the previous year; and achieved product sales of 164.05 tons, a sharp increase of 99.8% over the previous year. The sharp increase in the gross margin of the company's precursor business is mainly due to the increase in the volume and scale efficiency of the company's new high-value-added precursor products. In terms of cost ratio, 24H1 company's management expense ratio increased by 0.42 pct year on year, and sales, R&D, and finance expenses decreased by 0.39 pct, 0.19 pct, and 0.71 pct, respectively.

Promote new production capacity climbing and promote client-side verification of new products. In the first half of 2024, the company's electronic specialty gas production capacity utilization rate was 91.4%, an increase of about 3.6 pct compared with the 2023 level. In addition, the company is currently building 2,700 tons/year of electronic special gas production capacity. In December '23, the company issued an announcement stating that it plans to invest 0.6 billion yuan to build a high-purity electronic-grade NF3 production project with an annual output of 8,400 tons in Bayin Chemical Industrial Park in Chahar High-tech Zone. Meanwhile, the company expects to build a 30 tons/year hexafluorobutadiene pilot project in 2024. In the first half of 2024, the company's precursor capacity utilization rate was 75.0%, an increase of about 24.4 pcts compared with 2023 levels. Focusing on customer needs, the company continues to enrich the range of precursor products. Currently, nearly 10 products have been produced in stable mass production, and various products have continued to be introduced into the integrated circuit mass production process.

Profit forecasting, valuation and ratings: Benefiting from the significant release of new high-value-added precursor products, 24H1's precursor business gross margin increased dramatically, which in turn led to the company's revenue and profit growth. The performance was slightly higher than our previous expectations. Considering the sharp increase in the gross margin of the company's precursor business, we raised the company's profit forecast for 2024-2026. We expect the company's net profit to be 3.37 (21.0% increase), 4.50 (28.0% increase), and 5.82 (32.3% increase) billion yuan respectively, maintaining the company's “increase” rating.

Risk warning: Product price fluctuations, downstream demand falling short of expectations, capacity construction risks, product development risks, customer introduction progress falling short of expectations.