Event: on August 25, the company released its semi-annual report. In the first half of 2023, the company realized operating income of 616 million yuan, down 31.34% from the same period last year; net profit from home was 58 million yuan, down 63.83% from the same period last year; and net profit from non-return was 52 million yuan, down 66.19% from the same period last year. Among them, the company achieved a net profit of 44 million yuan in the second quarter, down 45.64% from the same period last year and an increase of 214.55% month-on-month.

Show material performance in the first half of the year under pressure, is expected to enter the business cycle as terminal demand recovers. According to the company's semi-annual report, the company showed that the material sector achieved sales revenue of 511 million yuan in the first half of 2023, accounting for 83% of the company's total revenue, down 37% from the same period last year. The company showed that the year-on-year decline in revenue from the materials sector was mainly due to strong downstream demand in the first half of 2022, and the company showed higher-than-expected growth in materials business. Although demand improved quarter by quarter in the first half of 2023, overall income still declined significantly compared with the same period last year. From a month-on-month point of view, the industry demand for LCD panels has rebounded since the second quarter. According to the company's semi-annual report and DSCC data, the total TFT investment of all panel manufacturers in the first quarter of 2023 is 69 million square meters, and the total TFT investment in the second quarter of 2023 is expected to be 78.9 million square meters, an increase of 14% compared with the previous quarter. It is expected that terminal consumer demand will recover further from the second half of 2023.

Pharmaceutical CDMO plate of the main products of the terminal new process drugs gradually volume, revenue growth. In the first half of 2023, the company's pharmaceutical CDMO segment achieved sales revenue of 76.82 million yuan, accounting for 12% of the company's operating income, an increase of 14% over the same period last year. The revenue growth of the company's pharmaceutical sector is mainly attributed to: 1) the terminal new process drugs of the main products of the pharmaceutical plate are gradually released, and customers have increased the procurement of pharmaceutical intermediates supporting the terminal drugs. The income of this matching product is more than 10 million. 2) some pharmaceutical intermediates are gradually produced and supplied and the sales income increases slightly.

As of mid-2023, the company had 168 medical pipelines, a net increase of 28 compared with the end of 2022.

The electronic chemicals sector keeps growing and is expected to become a new momentum for the company's growth. In the first half of 2023, the company's electronic chemicals and other new materials achieved sales revenue of 28.27 million yuan, accounting for 5% of the company's total business, an increase of 22% over the same period last year. The company's main products in the electronic chemicals sector include semiconductor photoresist monomer, TFT flat layer photoresist, film material intermediates and PI monomers. Some mass-produced products maintain a trend of rapid growth and great potential for development, which will lay the foundation for the company's rapid growth in the future.

Investment suggestion: as the consumer electronics terminal demand warms up and the panel factory completes the removal of the warehouse, the material demand is expected to pick up gradually. At the same time, the company's layout in the field of medicine and electronic materials is expected to help the company achieve high growth. We expect the company's earnings per share from 2023 to 2025 to be 1.27,1.99,2.68 yuan respectively, corresponding to 25.13,15.97,11.89 times PE, maintaining the "buy" rating.

Risk hint: downstream demand is not as expected, project construction progress is not as expected, product price fluctuation risk.