24Q2 revenue/net profit to mother ratio -19.5%/-43.1%, maintaining the “purchase” 24H1 company's revenue/net profit of 2.22/0.04 billion yuan, -9.6%/-47.6% YoY, 24Q2 revenue/net profit to mother 0.95/0.03 billion yuan, -19.5%/-43.1% YoY. The display materials and applied materials business entered a technology upgrade iteration period and large-scale product introduction period, leading to high pressure on the company's short-term operating performance.

We expect the company's net profit to be 0.15/0.22/0.31 billion yuan (CAGR +42%) in 24-26, which is comparable to the average expected average of 1.2xPEG in 24 years. Considering that the company's high-purity quartz sand, UTG and other products are highly scarce and have been introduced into some core customer supply chains, the company was given 2.0xPEG for 24 years, with a target price of 13.38 yuan to maintain “purchase”.

Revenue from the display and materials business was under pressure, but Q2 gross margin increased 24H1's new display/application materials achieved revenue of 1.55/0.67 billion yuan year-on-year, -32.9%/-23.2% (before partial offset); gross margins were 14.4%/18.8%, +6.6/-2.2pct year on year, respectively, indicating an increase in business gross margin or the exclusion of inter-segment revenue. The main subsidiary of 24H1 Company, Bengbu Zhongheng/Kaisheng Yingcai/Shenzhen Guoxian earned 0.47/0.26/1.3 billion yuan, or -12.4%/-24.3%; net profit was 0.05/0.04/0.05 billion yuan, with a net profit margin of 11.3%/15.4%/4.1%, +1.1/-15.6/+2.0pct. Kaisheng Yingcai's net interest rate declined a lot, mainly due to a sharp drop in the price of high-purity quartz sand. 24H1's overall gross profit margin was 15.8%, +2.4pct year over year, 17.7% in 24Q2, +3.9/+3.4pct YoY.

The cost rate for the period increased significantly year-on-year. The increase in government subsidies affected the non-recurring profit and loss rate of the 24H1 company for the period of 15.3%, +4.0pct year-on-year. Among them, the sales/management/R&D/finance expenses ratio was 2.4%/5.7%/5.2%/1.9%, and +0.5/+1.0/+1.3/+1.2pct. The decline in revenue led to an increase in all expense rates. 24H1 Company's non-recurring profit and loss was 0.07 billion yuan, an increase of 0.01 billion yuan over the previous year, mainly due to an increase in government subsidies. 24H1 company's balance ratio/interest-bearing debt ratio was 57.5%/35.4%, +2.9/+4.4pct year over year. It was mainly due to an increase in short-term debt, but the average financing cost decreased by 41 bps year on year. 24H1's net operating cash flow was 0.03 billion yuan, -0.18 billion yuan year on year, 0.06 billion yuan year on year, and -0.13 billion yuan year on year, mainly due to the increase in cash paid by labor services for purchasing goods.

UTG Phase II already has some production capacity. The new products have gradually entered the large-scale introduction period. According to the company's announcement, as of 24H1's UTG Phase II project, the production capacity of 4 production lines has already started. At the same time, the company is making every effort to promote UTG primary molding technology research and development. It has now completed the demonstration line plant infrastructure construction, and the installation and commissioning of core thermal equipment is being carried out.

In terms of applied materials, nano zirconia has achieved batch supply in the new energy battery and hydrogen energy industry; the quality of high-purity quartz sand has been steadily improved, and the 5000t semiconductor silicon dioxide project is progressing steadily. It is expected that pipeline cleaning, equipment commissioning, etc. will begin in September, and new products will gradually enter the large-scale introduction period.

Risk warning: demand for folding screens falls short of expectations, UTG production line construction falls short of expectations, product iteration risks.