Description of the event

The company released its 2024 semi-annual report. During the reporting period, it achieved revenue of 1.58 billion yuan (YoY +15.1%), realized net profit attributable to mother 0.31 billion yuan (+40.3% YoY), and achieved net profit of 0.23 billion yuan (YoY +2.7%) after deducting net income from non-mother. Among them, Q2 achieved revenue of 0.79 billion yuan in a single quarter (+12.8% YoY, +1.5% month-on-month), attributable net profit of 0.17 billion yuan (+20.3% YoY, +16.9% month-on-month), and realized 0.14 billion yuan in non-net profit (+2.0% YoY, +68.8% month-on-month).

Incident comments

Investment returns have increased dramatically, driving significant improvements in performance. In the first half of 2024, the company achieved net profit of 0.31 billion yuan, the vast majority of which was contributed by investment income from participating subsidiaries. The rising tire boom led to a significant increase in the company's investment income. 2024H1 obtained 0.209 billion yuan in investment income, an increase of 0.071 billion yuan over the same period last year; the company directly held 8.9% of Zhongce Rubber's shares and indirectly held 5.1% of Pulin Chengshan shares. The two tire companies confirmed investment income of 0.181 billion yuan in the first half of the year. 0.026 billion yuan is the main source of the company's performance. In addition, the profitability of the company's table business increased slightly. The gross margin of 2024H1 was 25.5%, +1pct year on year. Improved tire demand led to an increase in demand for the company's specialty rubber additive products. 2024H1 achieved sales volume of 7,6822 tons, +15.0% year over year; the recovery in the downstream consumer electronics industry combined with the company's new product introduction volume, and the company's electronic chemical sales volume reached 7965 tons, +43.7% year over year.

Photoresists continue to make breakthroughs. Thanks to the recovery of the industry, the large-scale launch of the company's new products, the commissioning of the Tongcheng Electronics production plant and the promotion of user verification. 2024H1's semiconductor business showed a very strong growth trend. The semiconductor photoresist business achieved revenue of 0.128 billion yuan, an increase of 54.4% over the previous year. By product, the growth rate of KrF photoresists was over 60%; the growth rate of chemically released large-scale I-line photoresists was over 500%. In addition to traditional superior products, the company introduced a variety of high-resolution KrF, ArF photoresists, and BARC bottom anti-reflective coatings for verification on clients, and passed certification one after another, and ArF photoresists have been sold. EBR G5 grade, a supporting reagent for high-specification photoresists, has been officially mass-produced and shipped, and is expected to gradually increase in volume in the second half of the year. In terms of panel photoresists, 2024H1 achieved sales revenue of 0.159 billion yuan, +27.8% year-on-year; the domestic market share was about 25.9%, making it the largest domestic supplier. The project with an annual output of 0.011 million tons of semiconductors, photoresists for flat panel displays, and 0.02 million tons of related supporting reagents has been partially completed.

Step ahead to the polishing pad race track. The subsidiary Tongcheng Electronics signed the “Semiconductor Chip Advanced Polishing Pad Project” cooperation agreement with the Industrial Development Zone to invest in the construction of a semiconductor chip polishing pad production base. The agreement was registered to invest 0.3 billion yuan, mainly engaged in the R&D, production and sales of semiconductor chip polishing pads. The successful completion of the project can achieve an annual production of 0.25 million semiconductor chip advanced polishing pads, and the annual sales are expected to be about 0.8 billion yuan after delivery. The project is currently under construction.

Maintain a “buy” rating. The company is a domestic leader in special rubber additives and photoresists, and has excellent R&D capabilities. Special rubber additives are expected to benefit from the recovery in tire demand, and photoresists continue to achieve breakthroughs, and are expected to continue rapid growth, helping the semiconductor industry chain to replace domestic production and become autonomous and controllable. Net profit attributable to 2024-2026 is expected to be 0.56, 0.68, and 0.75 billion yuan, maintaining a “buy” rating.

Risk warning

1. The development of the automobile industry falls short of expectations;

2. Product verification falls short of expectations.