Event: On August 28, 2024, UniTech released its 2024 semi-annual report. The company's revenue for the first half of 2024 was 1.063 billion yuan, up 13.37% year on year; net profit to mother was 0.123 billion yuan, up 105.94% year on year; net profit after deducting non-net profit was 0.121 billion yuan, up 105.54% year on year. The corresponding company's 2Q24 revenue was 0.543 billion yuan, up 4.34% month-on-month; net profit to mother was 0.067 billion yuan, up 22.36% month-on-month.

Comment: Increased profit levels in the silicon dioxide sector contributed to the company's overall performance growth. According to the company's 2024 semi-annual report, 1H24's carbon black/silica/sodium silicate revenue was 0.527/0.507/0.007 billion yuan, YoY was -5.12%/44.66%/-3.21%, respectively; gross margins were 7.69%/29.37%/7.30%, with year-on-year changes of 0.83/10.39/4.37pcts, respectively. The gross margin of silicon dioxide products increased significantly. We believe that the main reason for this is related to the increase in the share of high value-added products such as highly dispersed silica in the company's silica products. According to the company's 2024 semi-annual report, all of the company's 0.1 million tons/year highly dispersed silica projects reached the scheduled state of use by the end of 2023, and the capacity utilization rate of the 1H24 project was 91.13%. We expect that with the further optimization of the company's product structure, the company's overall profit will further increase.

In terms of product prices, the average price of 1H24 carbon black and white carbon black both declined to varying degrees. According to data from the Chamber of Commerce, the average price of 1H24 carbon black/white carbon black was 9563.08/5888.72 yuan/ton, respectively, a year-on-year decrease of 9.34%/0.30%. We believe that against the backdrop of a year-on-year decline in the average market price, the company was able to achieve a year-on-year increase in revenue and profit, which confirms that the company's differentiation strategy has achieved certain results.

1H24's sales expenses increased 39.63% year on year, sales expenses rate was 0.71%, up 0.13 pcts year on year; financial expenses decreased 83.03% year on year, financial expenses rate was -0.92%, down 0.35 pcts year on year; management expenses decreased 7.97% year on year, management expenses were 1.45%, down 0.34 pcts year on year; R&D expenses increased 19.87% year on year, and R&D expenses increased by 3.60% year on year, up 0.19 pcts year on year.

The net cash flows of the 1H24 company varied greatly. 1H24 net cash flow from operating activities was $0.094 billion, up 106.81% year on year; net cash flow from investing activities was -0.031 billion yuan, up 46.49% year on year; net cash flow from financing activities was -0.155 billion yuan, down 163.47% year on year; and the balance of cash and equivalent at the end of the period was 0.615 billion yuan, down 1.63% year on year. Accounts receivable increased 14.97% year over year, and the accounts receivable turnover decreased, from 2.67 times in the same period in 2023 to 2.63 times; inventory increased 17.61% year over year, and inventory turnover increased, from 6.43 times in the same period in 2023 to 7.28 times.

The first phase of the company's high-voltage conductive carbon black project has entered the trial production stage, and the differentiated product strategy has been further deepened.

According to the company's trial production announcement on June 27, Lianke New Materials will be built in two phases, with an annual output of 0.1 million tons of nanocarbon materials for high-voltage cable shielding materials. The government has agreed to the first phase of the company's project for trial production. After the project is put into operation, it will further optimize the industrial layout of the company's products, enhance the market share and product competitiveness of the company's conductive carbon black products, and enhance the company's profitability. We are optimistic that the company's high-voltage conductive carbon black shielding project will gradually be put into operation, which is expected to open up the company's second revenue growth curve.

Investment advice: We expect the revenue of Liantech to be 2.493/3.006/3.324 billion yuan respectively, up 30.1%/20.6%/10.6% year on year, and net profit to mother of 0.255/0.348/0.397 billion yuan respectively, up 51.2%/36.6%/14.1% year on year, corresponding EPS of 1.26/1.72/1.96 yuan respectively.

Combined with the company's closing price on September 2, the corresponding PE was 11/8/7 times, respectively. We are based on the following three aspects: 1) We expect that with the further optimization of the company's product structure, the company's overall profit will further increase; 2) We believe that in the context of the year-on-year decline in average market prices, the company can achieve a year-on-year increase in revenue and profit, which confirms that the company's differentiation strategy has achieved certain results; 3) We are optimistic that the company's high-voltage conductive carbon black shielding project will gradually be put into operation, which is expected to open up the company's second revenue growth curve and maintain the “buy” rating.

Risk warning: risks caused by changes in the macroeconomic environment, risk of price fluctuations of major raw materials, market risk, risk of environmental protection policy changes.