Affected by the decline in product prices, 24H1's net profit declined year-on-year; 24Q2's performance and profitability improved markedly month-on-month. 2024 results: According to the company's 2024 semi-annual report, 24H1 achieved revenue of 0.607 billion yuan, +1.96% year over year, and net profit to mother of 62.7652 million yuan, -20.95% year over year. The main reason for the year-on-year decline was the year-on-year decline in sales prices of zirconium products and a decline in product gross profit. 24H1's overall gross profit margin was 27.57%, -3.86pct year on year, and 10.35% net profit margin to mother, -3.0pct year on year. 24Q2 performance:
24Q2 achieved revenue of 0.351 billion yuan, +18.15% YoY, +37.19% month-on-month, net profit of 43.4836 million yuan, +0.27% YoY, +125.52% month-on-month, gross profit margin 29.57%, YoY -2.71 pct, 4.74 month-on-month, 12.39% month-on-month, -2.21pct, YoY +4.85pct.
Zirconium products contributed to stable revenue, and nuclear-grade zirconium sponge progressed smoothly. 24H1's zirconium products contributed 0.519 billion yuan in revenue, +5.68% year-on-year, accounting for 85.54% of overall revenue, and a gross profit margin of 28.70%, or -6.54% year-on-year.
Prices of the company's fused zirconia products rose in the first half of 2024 compared to the beginning of the year, but due to the economic downturn at home and abroad, there was no significant improvement in overall demand for products, and market competition was still fierce. The company actively expanded downstream applications. Sales in middle and high-end application fields such as zirconium sponge, high-end friction materials, and new energy increased, offsetting part of the impact on the traditional fused zirconia industry market. In addition to industrial-grade zirconium sponge, the company's nuclear grade zirconium sponge is progressing smoothly. The project with an annual output of 1,300 tons of nuclear grade zirconium sponge is expected to be put into trial production in the second half of '24, and a strategic cooperation agreement was signed with Nanjing Youtian.
The industrialization of solid-state batteries is progressing rapidly, and the company actively lays out solid-state electrolyte research and development. The company uses self-produced zirconia as a raw material to synthesize solid electrolyte powders, including LLZP and LLZTO series of zirconium-containing solid electrolyte powder materials. Samples of the company's oxide electrolytes have been sent for downstream customers to test. Currently, the company has completed the design of the oxide electrolyte pilot line and is currently supporting the corresponding equipment. In terms of chloride electrolytes, the company has built a small trial development line for zirconium-based chloride materials to prepare zirconium-based chloride materials suitable for chloride electrolyte synthesis. Currently, zirconium-based chloride has been supplied in small quantities to downstream solid state battery plants, and large-scale construction is carried out according to market demand.
Profit forecasting and valuation. We expect the company's net profit to be 0.143 billion yuan, 0.178 billion yuan, and 0.225 billion yuan respectively in 2024-2026. The company has been deeply involved in the processing of zirconium materials for a long time and is actively expanding downstream application fields. It is expected that with the gradual release of nuclear-grade zirconium sponge, the industrialization process of solid state batteries accelerates, and shipments in other high-end applications increase steadily, the company's profitability will further improve. Since there are few comparable companies, the median PE-TTM value since the company went public is 41.69X, and the average value is 53.62X. Referring to the historical valuations of comparable companies and companies, we believe that the company has great future potential in emerging fields. Therefore, the company was given a PE valuation of 50-53 times in 2024, corresponding to a reasonable value range of 16.94-17.96 yuan. For the first time, coverage gave a “superior to the market” rating.
Risk warning. Risks caused by fluctuations in raw material prices; risk that downstream demand falls short of expectations; risk that technology research and development progress falls short of expectations.