Event: The company publishes its 2024 semi-annual report. 24H1 achieved operating income of 8.488 billion yuan, an increase of 0.15% over the previous year; realized net profit of 0.131 billion yuan to mother, an increase of 15.47% over the previous year. Among them, 24Q2 achieved operating income of 4.514 billion yuan, a year-on-year decrease of 1.77% and a month-on-month increase of 13.59%; net profit to mother was 0.021 billion yuan, an increase of 177.00% year-on-year and a year-on-year decrease of 81.40%.

Efforts were made to promote the volume-based price compensation strategy, and 24H1 profit increased year-on-year. 24H1 makes full use of its brand advantages and makes every effort to promote a quantitative price compensation strategy. In terms of agrochemicals, 24H1 achieved revenue of 2.72 and 0.88 billion yuan in agrochemical products, respectively, with year-on-year changes of -3.2% and -3.2%, respectively. In terms of new silicon-based materials, 24H1's silicon-based basic products, silicon-based terminals and specialty silane products achieved revenue of 1.5 and 1.22 billion yuan respectively, with year-on-year changes of +37.6% and +3.1%, respectively. The production and sales volume of silicon-based material products all increased significantly year-on-year. 24H1 cyclic silicone, silicone intermediates, and silicone rubber achieved sales volumes of 0.059, 0.036, and 0.041 million tons respectively, with year-on-year changes of +64.23%, +58.41%, and +10.63%, respectively. In addition, 24H1's gross sales margin was 9.9%, -2.4pct year over year.

Driven by crop protection and new silicon-based materials, industrial chain integration has remarkable advantages. In terms of crop protection, the company has formed an “intermediate-original drug-preparation” integrated development model. The annual supply of glyphosate raw materials is about 0.1 million tons, and 24H1's sales of glyphosate preparations increased 52% year on year. In terms of new silicon-based materials, the company has a complete industrial chain from upstream silicon ore mining and industrial silicon smelting, to silicone monomer synthesis, silicone deep processing, and downstream terminal product manufacturing. The company currently has a production capacity of 0.55 million tons/year of silicone monomers and is in a leading position in the industry. The company's new silicon-based materials have formed a total of more than 3,000 terminal product clusters, with a terminal conversion rate of over 40%.

Seize overseas market opportunities and accelerate global layout and capacity building. 24H1 accelerates the layout of the African market, establishes new regional companies, and carries out pre-operation preparations; anchors the target market and continues to promote cooperation between Central American companies; 24H1 submitted 365 registrations, obtained 249 certificates, and accumulated more than 4,200 registrations to accelerate overseas registration of new products and provide a market foundation for new projects to reach production. Silicone overseas forms a “product line+local region” matrix-like operation and management model. Overseas companies rapidly increased their business, new companies started operations in key markets, and a full range of silicon-based products achieved full coverage around the three key markets of Europe, America, and Asia. 2024H1's exports generated 0.256 billion US dollars in foreign exchange, up 23% year on year, and export volume increased 66% year on year.

Profit forecast, valuation and rating: Considering that prices of the company's main products, glyphosate and silicone, will continue to be low, and the company's profit will still be under pressure, we lowered the company's 24-26 profit forecast. The company's net profit to mother is estimated to be 2.49 (down 55.3%) /4.03 (down 40.2%) /5.40 (down 34.9%) billion yuan for 24-26, respectively. The company has the highest production capacity in the domestic glyphosate and silicone industry. With the gradual improvement in downstream demand, the profitability of the company's main products is expected to be restored, maintaining the company's “buy” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, environmental protection and production safety risks.