Introduction to this report:

Performance fell short of expectations, and contract debt increased; graphite material projects were put into operation, and an integrated layout of “materials, equipment, systems and services” was formed; horizontal expansion into new fields was accelerated.

Key points of investment:

Maintaining an increase in holdings rating: Considering the weakness of downstream industries such as chlor-alkali and polysilicon, the 24-25 EPS was reduced by 1.04/1.88 yuan (previous value: 1.74/2.17 yuan), and the 26-year EPS was reduced to 2.38 yuan. Referring to a comparable company's average PE value of 17 times in 25 years, the company was given 17 times PE in 25 years, and the corresponding 25-year target price was 31.96 yuan (previous value was 29.35 yuan, target price for 2024). Maintain an “Overweight” rating.

Performance fell short of expectations, and contract liabilities were high. 24Q1-Q3 achieved revenue of 0.45 billion yuan/ -18.89%, net profit due to mother 0.098 billion yuan/ -14.03%; deducted from non-return mother 0.083 billion yuan/ -21.02%.

The 24Q3 Company achieved revenue of 0.156 billion yuan/YoY -21.61% /-10.98%, net profit to mother 0.036 billion yuan/YoY -9.62% /month-on-month +9.01%. The large decline in the company's revenue is mainly due to weak demand in downstream markets such as chlor-alkali chemicals, polysilicon, silicone, etc., and the development of new domestic fields and overseas markets fell short of expectations. 24Q1-Q3 gross margin was 43.15%/YoY +4.1pct, net profit margin 21.84%/YoY +1.23pct. It is estimated that the increase in the company's gross margin was mainly due to the graphite material subsidiary Planet New Materials 24H1 achieving a net profit of 2.457 million yuan, while a loss of 2.1519 million yuan was recorded in the same period last year. Due to the accrual of interest charges on convertible bonds, 24Q1-Q3's financial expenses were 0.016 billion yuan/year over year +220%. By the end of 24Q3, the company's contract debt was 0.421 billion yuan, an increase of 21.67% over the end of the previous quarter, a significant increase.

The graphite material project was put into operation, and an integrated layout of “materials, equipment, systems and services” was formed.

The Inner Mongolia New Material Specialty and Chemical Graphite Material Project was fully put into operation in August 2023. It has processes such as calcination, molding, roasting, impregnation, graphitization, and machining to meet the needs of the processed production of graphite materials. Graphite raw materials account for about 50% of the company's procurement costs. After the project is put into operation, 0.02 million tons of graphite material production capacity will be added every year. Equipment used for self-production can shorten the production cycle, optimize the cost structure, and thereby improve profitability; in the future, it is expected to open up the graphite material export market and open up room for growth.

Expand horizontally into new fields and accelerate overseas expansion. 24H1 pioneered the rare earth industry and signed a contract with China's Fifth Ring Road Company for complete mixed acid distillation equipment required for rare earth smelting. In the future, as demand for rare earths increases, it is expected to contribute additional volume to the company. In April 2024, the company established Beijing Planide Engineering Technology Co., Ltd., to further accelerate the company's products going overseas by introducing a team with overseas project resources and management experience.

Risk warning: weak demand in the petrochemical industry, delayed overseas delivery, delayed polysilicon delivery.