Incident: The company announced the third phase of the stock options and restricted stock incentive plan. The incentive plan includes two parts: the stock option incentive plan and the restricted stock incentive plan. The total equity to be granted to the incentive recipients is 12.92 million shares, accounting for 3.78% of the company's total share capital. Among them, the exercise price of stock options is 13.28 yuan/share, and the restricted stock grant price is 6.66 yuan/share. A total of 119 people are all executives, middle level and core key personnel working for the company. The assessment index is the growth rate of operating income or net profit for 2024-2026 based on operating income or net profit in 2023. We believe that the company's business situation has reached a low point and is improving quality at an accelerated pace. The company issued an equity incentive plan at this time, which helps to deeply bind the company's development to core employees, allow employees to share the company's development achievements, stimulate enterprise vitality, and walk a more steady and long-term path to a second take-off.

An equity incentive plan is issued, and the company's development is deeply tied to core employees to stimulate enterprise vitality and share development results. The incentive plan is divided into two parts: a stock option incentive plan and a restricted stock incentive plan. The stock source is the company's targeted issuance of shares to the incentive target. The total equity granted is 12.92 million shares, accounting for 3.78% of the company's total share capital. It is granted in a one-time grant with no reserved benefits. The incentive targets were 119 people, including 6 executives and 113 middle management personnel and core key employees. Among them, middle management and core key employees accounted for 83.75% of the authorized benefits. The exercise price for stock options is 13.28 yuan/share, and the grant price for restricted shares is 6.66 yuan/share. The assessment goals of the two incentive plans are the same. The assessment goal is to meet either the revenue growth rate or net profit growth rate: the operating income assessment target is based on the 2023 operating income, the 2024-2026 revenue growth rate is not less than 20%, 40%, and 60%; the net profit assessment target is based on 2023 net profit, and the net profit growth rate for 2024-2026 is not less than 10%, 30%, and 60%. According to the company's 2023 company announcement, the company's revenue in 2023 was 1.556 billion, and the corresponding 2024-2026 revenue assessment target values were 1.867 billion, 2.178 billion, and 2.49 billion; the 2023 net profit was 0.22 billion, and the corresponding 2024-2026 net profit assessment target values were 0.242 billion, 0.286 billion, and 0.352, respectively billion. We believe that the company's business situation has broken out of its low point and is improving quality at an accelerated pace. The company issued an equity incentive plan at this time, which helps to deeply bind the company's development to core employees, allow employees to share the company's development achievements, stimulate enterprise vitality, and walk a more steady and long-term path to a second take-off.

Move forward in 2023, and continue to pursue high-quality development in 2024. In recent years, the company has continued to increase investment in R&D, built small and pilot production lines, established precision instrument laboratories, and built modern laboratories that can simulate actual applications. Through more than 30 years of accumulation, the company has cultivated a large number of professional and technical talents, and the technology has been passed down. The continuous addition of domestic and foreign technical experts and highly educated and high-level talents has helped the company overcome one technical problem after another. As the number one domestic and the world's leading manufacturer of cellulose ether, the company has gone through the whole process from imitation and imitation to independent innovation, and has now become a leader in product development in the same industry in China. The company has been deeply involved in the cellulose ether industry for many years, established a good brand image with excellent product quality and service capabilities, and has accumulated rich customer resources and sales channels.

The company's main customers include: building materials industry - Italy Mapei (Mapei), France Saint-Gobain (Saint-Gobain), German Knauf Gips KG (Knauf Gips KG), American Leitti, JCDecaux (Guangzhou) Building Materials Co., Ltd., Nippon Paint, Beijing Oriental Yuhong, Fujian Sankeshu, etc.; pharmaceutical industry - India IRIS Ingredients, Zhengda Tianqing Pharmaceutical Group Co., Ltd., Shijiazhuang Huaxin Pharmaceutical Group Co., Ltd., Lunan Pharmaceutical Group Co., Ltd. Jiangsu Deyuan Pharmaceutical Co., Ltd., etc. In 2024, the company will continue to pursue high-quality development. By adjusting the product and market structure, upgrading and expanding to high-value-added fields, pharmaceutical and food-grade cellulose ethers with a wide range of application scenarios have real potential for growth, and it is also an area that competes with international giants. The company will further increase investment in the pharmaceutical and food sector, build R&D centers, and introduce R&D equipment and high-end R&D talents, so that high value-added products can bring greater profit margins.

Net interest rates have rebounded steadily, and the company is about to enter the 2.0 phase of rapid development. The company achieved revenue of 0.5 billion yuan in the second quarter of 2024. The revenue for a single quarter is already the second best in history. The new high-green cellulose ether plant has begun to produce building material-grade and pharmaceutical and food-grade cellulose ether products. The fixed assets of the new production capacity have all been converted. With the increase in capacity utilization, the company's net interest rate has already begun to increase month-on-month. Overseas vegetable capsule inventory removal ended in 2023, and the operating rate of new production capacity increased steadily in 2024. Overall, the company's most stressful period has passed, and various businesses have made significant improvements. In the future, the company will start lightweight and usher in a 2.0 stage of rapid development. Currently, the company has a total cellulose ether production capacity of 0.074 million tons. It is a leading domestic cellulose ether enterprise. At the same time, the company is also developing new customers in new application fields. These new products are more expensive and more profitable. In the field of vegetable capsules, the company is a global industrial chain integrated company for vegetable capsules. Currently, the company has a production capacity of 35 billion tablets. As foreign capsule inventory removal ends and normalization returns, demand for vegetable capsules is expected to pick up, and production capacity utilization rates will further increase. At the same time, the more expensive second-generation vegetable capsules have also been verified and mass sales have begun.

Maintain a “Highly Recommended” investment rating. Based on the company's performance in the first half of the year and the future international situation, we expect the company's revenue for 2024-2026 to be 1.905 billion yuan, 2.334 billion yuan and 2,775 billion yuan respectively, net profit to mother of 0.26 billion yuan, 0.334 billion yuan and 453 million yuan respectively, and EPS of 0.76 yuan, 0.98 yuan and 1.33 yuan, respectively. The current stock price corresponds to PE of 17.2 times, 13.4 times, and 9.9 times, respectively.

Risk warning: New project construction falls short of expectations, and product sales fall short of expectations.