Revenue rose steadily in the first half of the year, and performance continued to grow at a relatively rapid pace. In the first half of 2024, the company achieved total revenue of 0.414 billion yuan, up 12.02% year on year; net profit to mother of 0.128 billion yuan, up 17.37% year on year; after deducting non-net profit of 0.127 billion yuan, up 22.73% year on year; net cash flow from operating activities was 0.103 billion yuan, up 20.50% year on year. Overall, the company operated steadily in the first half of the year, increasing revenue and profit. As the main domestic replacement for high-end plastic additives, nucleating agents and synthetic hydrotalcite, the company continues to increase investment in R&D, promote iterative product upgrades, continuously improve product competitiveness, and continue to increase its market share. On the customer side, on the one hand, the company has increased in-depth cooperation with key customers, and on the other hand, actively developed new customers, increased market share, and achieved steady growth in performance.

The increase in gross margin compounded by a decrease in the cost ratio, and the company's profitability continued to increase. In the first half of the year, the company's nucleating agent business achieved operating income of 0.253 billion yuan, a year-on-year increase of 27.67% and a gross profit margin of 56.78%, compared with the full year of 2023 -0.25pcts; the synthetic hydrotalcite business achieved operating income of 0.0058 million yuan, an increase of 20.54% year-on-year, and a gross profit margin of 48.35%, compared with the full year of 2023, +3.92 pcts; the company's overall gross sales margin reached 45.09% in the first half of the year, and continued to increase 1.56 pcts compared to 2023 . In terms of the fee rate for the period, the company's four major expense ratios fell to 8.83% in the first half of the year, reaching the lowest level since the company went public.

The scope of application continues to expand, and the company's main products still have a lot of room for growth. The nucleating agent is mainly used to modify the general plastic polypropylene PP. Demand for polypropylene modified with a nucleating agent has continued to increase in the field of lithium battery materials and automotive parts in recent years. In addition to being generally used as an efficient, non-toxic, and environmentally friendly heat stabilizer for polyvinyl chloride PVC, synthetic hydrotalc can also improve the light transmission, insulation performance, and drip performance of agricultural films; as an acid absorbent, in the production of spandex, it can maintain the elasticity (oxidation resistance) of clothing and prolong the service life.

The IPO project is progressing steadily, and I am optimistic about the steady growth of the company. The Guangzhou Kecheng New Polymer Material Additives Construction Project (Phase I), one of the company's IPO fund-raising projects, has a design capacity of 36,600 tons/year. Of these, 14,400 tons/year production capacity was completed in Guangzhou Baiyun Plant in December 2023, and the remaining 22,200 tons/year production capacity is expected to be completed and put into operation in September 2024. Since 2023, the new production capacity of the company's technical reform and fund-raising projects has been put into operation one after another, and the problem of the company's insufficient production capacity has been greatly mitigated. We are optimistic that the company's revenue and performance will continue to grow at a relatively rapid level, and the growth certainty is good.

Risk warning: Market development risks; risks of business development and projects under construction falling short of expectations, etc.

Investment advice: The company is a leading domestic enterprise for nucleating agents and synthetic hydrotalcite. The industry in which it is located has broad scope for import substitution. With the gradual release of the company's production capacity under construction, we are optimistic about the company's steady growth. We maintain the company's profit forecast. In 2024-2026, the company's net profit to mother is 0.268/0.326/0.387 billion yuan, diluted EPS is 1.98/2.41/2.86 yuan, and the PE corresponding to the current stock price is 18.0/14.8/12.5x, maintaining the “better than the market” rating.