The company plans to acquire 100% of Jiangsu Jiahao's shares in cash. Among them, 39.0859% of Jiangsu Jiahao's shares were directly acquired, and 60.9141% of Jiangsu Jiahao's shares were purchased through the acquisition of 100% of Taicang Industrial's shares. The overall purchase price was RMB 484 million (before tax). The company signed a “Profit Pledge and Compensation Agreement” with the counterparty. The indemnification obligor agreed to pay cash compensation to the company in accordance with the conditions agreed in the “Profit Pledge and Compensation Agreement”, when Taicang Industrial's cumulative actual net profit for three years during the profit commitment period did not reach 117.45 million yuan after the completion of the transaction, the indemnity obligor shall pay cash compensation to the company in accordance with the compensation method agreed upon in the “Profit Pledge and Compensation Agreement”. Promised net profit: All parties in the “Profit Pledge and Compensation Agreement” agree that the net profit of Taicang Industrial in 2024, 2025, and 2026 shall not be less than 4200.00, 4350.00, and 45.0 million yuan, respectively, and that the total net profit promised over three years shall not be less than 13.5 million yuan. The acquisition is conducive to further improving the company's industrial layout, expanding the company's business areas, enriching the company's product categories, and increasing the company's core competitiveness in R&D, production and sales in the field of hot melt pressure-sensitive adhesives.

Net profit to mother in 24Q1 was -27.04% YoY. In 24Q1, the company achieved operating income of 475 million yuan, -10.59%; realized net profit to mother of 40.1236 million yuan, -27.04% year-on-year; realized deducted non-net profit of 38.2665 million yuan, -27.35% year-on-year. In 24Q1, sales revenue declined due to falling prices of major raw materials and a decrease in operating rates due to extreme weather. Product sales remained flat year on year. With the exception of the hollow and electric power sectors, decoration and silane coupling agents all showed high growth, and photovoltaics and automotive electronics all progressed steadily according to the plan. In order to further increase its market share, 24Q1 continues to increase its market investment, further increasing the company's brand promotion and marketing efforts. At the same time, 24Q1 sales expenses, management expenses, etc. all increased due to the company's 24Q1 equity incentive payments, which had a great impact on the company's 24Q1 profit.

Projects under construction have laid the foundation for the company's growth. 1) An additional 30,000 tons/year silicone sealant production capacity has been added, and the 100,000 tons/year high-end sealant intelligent manufacturing project has all been completed and put into operation. 2) Anhui SiBao's 8,500 tons/year silane coupling agent technical improvement project progressed according to plan, and all were completed and put into operation. 3) The 50,000 tons/year silicon-carbon anode material and special adhesive project for lithium batteries has completed infrastructure construction and equipment installation has begun. Of these, 10,000 tons/year of silicon-carbon anode materials for lithium batteries are scheduled to be put into operation in 2024 and 7,000 tons in 2025. 4) In 2023, the company built a pilot production line for 1000 tons/year silicon-carbon anode materials and was successfully put into operation. The products have achieved order breakthroughs, been well received by customers, and are currently being supplied in batches according to customer needs.

Maintain profit forecasts and investment ratings. As product prices and sales volume fell short of expectations, we lowered our performance. We expect the company's 2024-2026 net profit to be $281 million (-22%), $363 million (-13%), and $473 million (increase). Referring to companies in the same industry, we think the reasonable valuation is 25.56 times PE in 2024, and the target price is 18.40 yuan, maintaining an superior market rating.

Risk warning. Risk of macroeconomic fluctuations; risk of fluctuations in raw material prices.