Core views:

Company Announces 2024 Interim Report. The company achieved revenue of 1.005 billion yuan in 2024H1, +16.64% year-on-year, net profit to mother of 0.044 billion yuan, +44.35% year-on-year, after deducting non-attributable net profit of 0.039 billion yuan, and +50.29% year-on-year. Among them, Q2 achieved revenue of 0.568 billion yuan, +22.38% year over year, net profit to mother of 0.024 billion yuan, +16.61% year over year, net profit of 0.023 billion yuan after deducting non-return to mother net profit of 0.023 billion yuan, or +25.58% year over year. Continued growth in performance is mainly due to: (1) the company insists on developing differentiated and personalized functional products to consolidate its advantages in the high-end market; (2) adjusting the structure and price of wet products, sinking the market, and obtaining orders from the middle and low end markets with the ultimate cost ratio.

Competition in the industry was fierce, the company's gross margin declined, and overall expenses were well controlled during the period. 2024H1's gross margin, net interest rate, and deducted non-net interest rate were 14.77%/5.38%/3.90%, respectively, -1.00/+0.78/+0.87pct year-on-year; of these, Q2 company's gross margin/net interest/deducted non-net interest rate was -0.73/-0.12/ +0.10pct respectively, and profitability declined slightly, mainly due to intense competition in the middle- and low-end markets of the industry, and the downward pressure on product prices was strong. The company's customers generally demanded price reduction. In terms of expenses, 2024H1's sales/management/R&D/finance expenses ratio was 2.90%/3.15%/3.43%/-1.36%, respectively, +0.60/-0.95/-0.40/ -0.47pct, respectively. The increase in sales expenses was mainly due to an increase in employee remuneration, shopping mall service fees and promotion expenses. The sharp decline in management expenses was mainly due to a reduction in intermediary consulting and technical office expenses.

Profit forecasting and investment advice. The company's EPS is expected to be 0.62/0.74/0.89 yuan/share in 2024-2026, respectively. The company is a leading company in the spunlace nonwovens industry. As the industry's disorderly production capacity clears up, the company's market share is expected to increase further. In addition to the steady growth of the coil and products business, the company will continue to increase its own brand expansion, insist on focusing on differentiation and major customers, comprehensively consider the company's industry status and performance growth, refer to comparable company valuations, and give the company a PE valuation of 20 times in 2024, corresponding to a reasonable value of 12.43 yuan/share, and maintain a “buy” rating.

Risk warning. The risk of increased market competition; the risk of fluctuating raw material prices; the risk of sluggish downstream demand.