Key points of investment:

The company released its 2024 three-quarter report: During the reporting period, the company achieved revenue of 1.892 billion yuan (YoY +20%), achieved net profit of 0.596 billion yuan (YoY +15%), and net profit of non-return to mother of 0.578 billion yuan (YoY +15%). Among them, 24Q3 achieved revenue of 0.597 billion yuan (YoY +5%, QoQ -10%), realized net profit of 0.192 billion yuan (YoY +12%, QoQ -18%), and net profit of 0.185 billion yuan (YoY +13%, QoQ -18%) in a single quarter. The company's gross sales margin for the 24Q3 quarter was 51.20%, with year-on-month changes of +1.78pct and +1.76pct, net margin of 32.26%, and +1.93pct and -3.69pct year-on-month, respectively. At the same time, the company has drawn up a profit distribution plan for the first three quarters of 2024: a cash dividend of 1.19 yuan (tax included) will be distributed for every 10 shares, no bonus shares will be given, and the share capital will not be transferred from the capital reserve. 24Q3's single-quarter results fell short of expectations. We believe the main reasons are: 1) quarterly fluctuations in the pace of system device revenue confirmation; 2) exchange losses are expected to be around 12 million (Q2 is positive income); 3) income tax expenses increased by about 20 million month-on-month.

Emerging fields such as life sciences, semiconductors, new energy, energy saving and environmental protection have great potential, and fluctuations in short-term performance will not change long-term growth trends. The company is one of the few suppliers of “adsorption and separation materials+equipment” comprehensive solutions in China. With material breakthroughs as the core, the company continuously develops new cutting-edge applications, incubates multiple categories of products and develops together in multiple sectors, and its customers cover leading enterprises in various industries. In the field of life science, driven by the boom in the GLP-1 market, the company's demand for solid phase synthesis carriers increased significantly. The revenue growth rate of the sector in the first three quarters is expected to exceed 30% year-on-year, and the revenue of solid phase synthesis carriers in a single quarter is about 0.1 billion. In the field of drinking water, with competitive product lines, shorter supply cycles, and more flexible customer service, the company's market penetration rate has further increased, and it is expected that it will maintain a high growth rate in the future. In the semiconductor and nuclear grade ultrapure water sector, the company has achieved synthesis technology for uniform granular white balls by injection, achieving breakthroughs in domestic production, and there is broad scope for future replacement. Furthermore, in the context of dual carbon, the company also has great potential in various emerging fields such as synthetic biology, new energy metals, energy saving and environmental protection. On July 8, the company issued an announcement to invest in the construction of a high-end materials manufacturing industrial park. It plans to add 0.02 million tons of adsorption and separation materials and auxiliary supporting facilities to meet the market demand for high-value-added adsorption and separation materials such as ultrapure water and food.

Key projects are progressing on schedule, domestic and overseas market development efforts continue to be strengthened, and the company continues to lead the salt lake lithium extraction field. In 2024, the adsorption materials and system equipment for the SDIC Luo Potassium Project were successfully delivered in Q1; the first production line of the Guoneng Mining Final Chaka Project is being commissioned and tested. The project overcomes challenges such as high altitude, difficult construction and operation, and is expected to become the first industrial-grade “direct lithium extraction” benchmark project put into operation in Tibet; some of the equipment for the key project Hanak has been manufactured and is awaiting delivery, and a new system support contract has been added. As of the 2024 interim report, the company has completed and implemented more than 15 industrial lithium extraction projects in salt lake, with a total production capacity of nearly 0.1 million tons of lithium carbonate/lithium hydroxide, 6 of which have been successfully put into operation. At the same time, the company continues to strengthen the promotion of salt lake lithium extraction technology in the international market, establish a South American R&D center in Argentina to provide efficient, timely and localized technical services to a large number of customers in the “lithium triangle” region, and improve project development and implementation capabilities. Currently, the price of lithium resources is relatively low, but Salt Lake's direct lithium extraction technology route has significant cost advantages. The company has accumulated a wealth of pilot projects, providing potential for continuous order formation.

Investment analysis opinion: Q3 performance fell short of expectations. The company's 2024-2026 net profit forecast was lowered to 0.851, 1.015, and 1.206 billion yuan (the original value was 0.955, 1.193, 1.454 billion yuan), and the current market value corresponds to PE of 31, 26, and 22X. According to Wind's agreed expectations, comparable companies Nanowei Technology and Jiuwu Hi-Tech had an average PE of 50X in 2024, maintaining an “gain” rating.

Risk warning: 1) Industry competition increases risk; 2) risk of core technology leakage, loss of technical personnel and technology change; 3) risk of falling short of expectations in the industrialization of new technology.