Incident: The company released its 2024 semi-annual report, and both revenue and net profit to mother hit “record highs”.

2024H1: Achieved operating income of 3.257 billion yuan, +40.21% year over year; net profit to mother 0.52 billion yuan, +52.19% year over year; deducted non-net profit of 0.526 billion yuan, +50.67% year over year;

Q2 single quarter: Achieved operating income of 1.638 billion yuan, +30.91% year over month, +1.25% month on month; net profit to mother 0.274 billion yuan, +62.44% year over year, +11.28% month on month;

Profit margin: Q2 gross profit margin of 37.78% in a single quarter, +5.30pct year on year, +7.28pct month on month; net profit margin 17.09%, +3.27pct year on year, +1.62 pct month on month.

Accelerated release of electronic materials and LNG sheets contributed to high performance growth.

Precursor: H1 achieved revenue of 0.919 billion yuan, +42.64% year over year, accounting for 28.21% of revenue, gross profit margin of 59.09%, and +16.01% year over year;

Photoresists and supporting reagents: H1 achieved revenue of 0.858 billion yuan, +53.46% year over year, accounting for 26.34% of revenue, gross profit margin of 19.26%, and +44.10% year-on-year;

LNG sheet: H1 achieved revenue of 0.717 billion yuan, +47.08% year-on-year, accounting for 22.03% of revenue and 29.74% gross profit margin.

Benefiting from the booming market segmentation circuit, the company is the target of scarce HBM materials. AI is driving high demand for HBM. SK Hynix plans to increase HBM production capacity by more than 1 times in 2024, and Samsung plans to increase HBM production by 2024 to 2.5 times that of 2023. The precursor was simultaneously iterated along with the simultaneous iteration of the manufacturing process, and the unit price and usage of customized products required by HBM were greatly increased. The company is the only semiconductor precursor manufacturer in China. It has top international competitiveness in the storage field, and has fully benefited from being tied to SK Hynix, the leader of HBM.

Various business pipelines are progressing steadily, and we continue to focus on high-value-added application areas. Precursors: Jiangsu Xianke project Q2 was put into operation one after another, and the sales side achieved full coverage of domestic head storage and logic chip customers, increasing market share; photoresist: Jiangsu Xianke successively passed audits and on-site audits by various suppliers such as Huaxing Optoelectronics and BOE in the first half of the year, and multiple photoresist products entered the mass production and delivery stage on the client side; silicon powder: high-end products CCL, spherical alumina, and sub-micron spherical silicon dioxide all achieved breakthroughs; the 0.039 million-ton project was basically completed in batch construction to achieve small-scale mass production; announced in April 2028 Proposed investment of 0.897 Billion yuan is building a 0.024 million ton electronic materials project (spherical silicon powder, spherical alumina, etc.), with a construction period of 2 years; LNG sheet: The company is the first domestic LNG sheet manufacturer certified by GTT and the Classification Society. It has nearly 50 patents, and has established strategic partnerships with shipyards such as Hudong and Jiangnan.

Investment advice: We expect the company's revenue for 2024-2026 to be 6.94/8.35/9.8 billion yuan; net profit to mother 1.155/1.337/1.634 billion yuan; corresponding PE 21.1/18.2/14.9 times, respectively. The company is a pioneer leader, fully benefiting from HBM's boom and maintaining a “buy” rating.

Risk warning: Downstream demand falls short of expectations, industry competition intensifies, and production capacity falls short of expectations.