Event: The company publishes its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 0.693 billion yuan, a year-on-year increase of 12.6%; achieved net profit of 95.33 million yuan, a year-on-year increase of 63.5%; and realized net profit of 87.4 million yuan after deduction, an increase of 69.1% over the previous year. With 2024Q2, the company achieved revenue of 0.365 billion yuan in a single quarter, up 6.8% year on year and 11.3% month on month; realized net profit to mother of 60.99 million yuan, up 37.9% year on year and 77.6% month on month.

The OLED boom is rising, and 24H1's display materials revenue increased year-on-year. As OLED technology becomes more mature and the localization process of OLED materials accelerates, the penetration rate of OLED panels has increased, and corresponding OLED panel shipments have increased dramatically, and the company has benefited from this as a leading domestic OLED materials company. In the first half of 2024, the company's display materials sector achieved revenue of 0.665 billion yuan, an increase of about 30% over the previous year. Among them, the company's materials business revenue before OLED sublimation already surpassed LCD materials and became the company's largest business. In terms of the pharmaceutical business, since shipments of the company's main products in the pharmaceutical sector were concentrated in the second half of the year, the company's 24H1 pharmaceutical business revenue was temporarily under pressure. 24H1's pharmaceutical business achieved revenue of 23.16 million yuan, a decrease of 70% over the previous year. In terms of gross margin, benefiting from the increase in revenue share of high-margin products in display materials, 24H1's overall gross margin increased by 6.3 pct to 38.9% year-on-year. The company has always taken innovation as the first driving force to lead development. 24H1 invested 62.14 million yuan in R&D, an increase of 10% over the previous year, and R&D investment accounted for 9% of the main business revenue.

It is proposed to introduce state-owned shareholders to achieve strategic collaborative development. In May 2024, the company announced a fixed increase plan for 2024. The company plans to raise no more than 0.815 billion yuan in capital by issuing targeted shares to the Kai Investment Group. At the same time, the Kai Investment Group will transfer some of the company's shares and voting rights held by Zhuo Shi Partnership, Guofu Yongyu, Liu Xiaochun, etc. After the above share and voting rights transfers are completed, the Investment Group will become the controlling shareholder of the company, and the Qingdao West Coast New Area State-owned Assets Administration will become the actual controller of the company. By introducing state-owned shareholders, the company and shareholders will form links in terms of industrial development and business cooperation. At the same time, relying on the background of state-owned shareholders, the company's financial communication capabilities can also be enhanced.

It is proposed to increase capital to participate in optoelectronics and extend the OLED materials industry chain. In June 2024, the company issued an announcement stating that it plans to use its own capital to increase Idemitsu Electronics by 76.4 million yuan in cash. After the capital increase is completed, the company will hold 20% of Idemitsu Electronics's shares. Idemitsu Japan is a global leader in OLED blue light main materials. Idemitsu Electronics, which has increased its capital and shares, is the only manufacturing base for OLED light-emitting materials established by Idemitsu Japan in China, and the company itself is also a strategic supplier of materials before Idemitsu Japan's OLED sublimation. Through capital increases and shareholding, it helps the company to establish deep strategic partnerships with customers and enhance the company's position in the industry.

Profit forecasting, valuation and ratings: Benefiting from the rise in the OLED industry, the company's display materials revenue increased significantly, driving the company's performance growth. However, considering the decline in the company's pharmaceutical business revenue, we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is estimated to be 2.03 (down 21.2%) /2.73 (down 16.3%) /0.353 billion yuan, respectively. The company is a leading domestic OLED materials leader. It plans to introduce state-owned shareholders and also plans to participate in optoelectronics, which will significantly enhance the company's industrial collaboration and maintain the company's “buy” rating.

Risk warning: Customer introduction progress falls short of expectations, downstream demand falls short of expectations, product development risks.