Incident: Yongxin Co., Ltd. released its 2024 semi-annual report. In 2024, H1 achieved operating income of 1.651 billion yuan, up 2.84% year on year; net profit to mother 0.18 billion yuan, up 1.78% year on year; net profit after deducting 0.169 billion yuan, down 0.47% year on year. In 2024, Q2 achieved operating income of 0.816 billion yuan, a year-on-year decrease of 0.51%; net profit to mother was 0.094 billion yuan, a year-on-year decrease of 5.37%; net profit after deduction was 0.89, a year-on-year decrease of 5.34%.

Color printing and packaging materials are under slight pressure, production capacity in the BOPE film business continues to release and consumption is recovering slowly, and the company is still operating steadily. By product, 24H1's color printing and packaging materials, aluminized packaging materials, plastic flexible packaging film, and ink business achieved revenue of 11.88, 0.029, 0.307, and 0.071 billion yuan respectively, with year-on-year increases of -4.95%, 26.15%, 60.77%, and -1.46%, respectively. By region, 24H1 achieved revenue of 1.378 and 0.217 billion yuan in domestic and international markets respectively, with year-on-year increases of 3.64% and 5.13% respectively. The new BOPE film project continued to gain strength, contributing a major increase in the plastic flexible packaging film business, and the gross margin increased by 13.35 pcts over the same period last year. 24H1 opens a new Thai office to expand its business in Southeast Asia, and its international competitiveness is expected to be further strengthened.

Q2 Gross margin improved slightly, and cash flow performance was steady

The company has been actively implementing the “vertical integration” development strategy, continuously and steadily promoting self-construction or mergers and acquisitions to extend the industrial chain, enhance the technical platform, improve supporting production, reduce production costs, and ensure product yield and quality stability. On the other hand, the company's ability to develop new functional film materials has gradually formed complementary advantages, and the company's ability to resist market risks has increased, which is conducive to stability and raising gross margin levels. 24H1's gross margin was 22.38%, down 2.01 pct year on year; 24Q2 gross margin was 22.70%, down 1.67 pct year on year. In terms of period expenses, 24H1's period expenses rate was 10.41%, down 0.17pct year on year; sales/management/R&D/finance expenses rates were 1.90%/3.89%/4.50%/0.12%, respectively, +0.11/-0.37/+0.05/+0.04pct, respectively. Under the combined influence, 24H1 company's net interest rate was 11.04%, down 0.15 pct year on year; 24Q2 company's net interest rate was 11.59%, down 0.65 pct year on year.

In addition, 24H1 achieved operating cash flow of 0.215 billion yuan, a year-on-year increase of 155.00%, and cash flow continued to be steady.

Investment advice: As a leading domestic plastic packaging leader, the company continues to accumulate technology, management advantages and customer resources to steadily expand production capacity, and is expected to benefit from industry upgrading and pattern optimization in the long term. We expect Yongxin Co., Ltd.'s operating income for 2024-2026 to be 3.72, 4.072, 4.552 billion yuan, up 10.11%, 9.45%, and 11.80% year on year; net profit to mother will be 0.475, 0.542, 0.613 billion yuan, up 16.44%, 14.10%, and 13.13% year on year; corresponding PE will be 11.0x, 9.6x, and 8.5x, with a target price of 11.85 yuan for 24 years, maintaining buy-A Investment ratings.

Risk warning: risk of crude oil price fluctuations; risk of investment in new projects; increased risk of industry competition, etc.