Incident: The company announced its 2024 semi-annual results. During the reporting period, the company achieved revenue of 0.231 billion yuan, a year-on-year increase of 24.12%; realized net profit attributable to mother -0.006 billion yuan, a year-on-year decrease of 141.14%; realized net profit deducted from non-mother -0.01 billion yuan, a year-on-year decrease of 259.91%. Looking at Q2 alone, we achieved revenue of 0.131 billion, up 8.74% year on year; realized net profit of 0.005 billion, down 141.23% year on year; realized net profit without deduction of 0.006 billion yuan, down 186.08% year on year.

The decline in demand+production capacity is still in the early stages of climbing, putting pressure on the business, and core products are performing well. By business, 2024H1 achieved revenue of 1.26/0.074/0.025/0.006 billion yuan in non-ferrous photoelectric base films/ transparent film/ other functional film/ other businesses, yoy +20.64%, +166.20%, -42.26%, and -44.07%, respectively. The core product, tinted photoelectric base film, withstood pressure and showed good performance toughness. In terms of gross margin, 24H1's comprehensive gross profit margin was 11.64%, yoy-1.65pct; the gross margin of colored photoelectric base film/transparent film/other functional film/other business was 16.61%, -4.12%, 27.96%, and 34.43%, yoy+1.21/7.97/4.74/15.75pct, respectively.

The decline in performance is mainly due to a temporary imbalance between market supply and demand, an increase in product costs, and the combined company's fund-raising projects are still in the early stages of climbing, and operation and maintenance costs are high.

The cost rate increased during the period, and R&D investment continued to grow. In terms of cost ratio, 24H1 company's period cost rate was 12.10%, yoy+4.97pct, sales/management/finance/R&D expense ratios were 0.92%, 6.77%, 0.07%, and 4.34%, yoy-0.05/+1.65/+3.11/+0.25pct, respectively. Sales expenses increased 18.19% year over year, mainly due to increased personnel and salary; management expenses increased by 64.18% year over year, mainly due to the commissioning of the Renhe base project and rising labor costs and depreciation expenses; financial expenses increased 102.69% year over year, mainly due to a decrease in interest income. Faced with market pressure, the company continued to invest in R&D. The company invested 10.0555 million yuan in R&D in the first half of 2024, an increase of 31.82% over the same period last year.

Investment advice and valuation: According to the company's 24H1 performance, we adjusted the company's profit forecast for 2024-2026. The company is expected to achieve sales revenue of 0.523 billion yuan, 0.65 billion yuan, and 0.78 billion yuan in 2024-2026, respectively, with growth rates of 24%, 24.4%, and 19.9% respectively. Net profit attributable to mother was 0.003 billion yuan, 0.026 billion yuan, and 0.051 billion yuan, respectively, with growth rates of -79.8%, 783.3%, and 94.7%, respectively. Maintain an “overweight” investment rating.

Risk warning: Risk of fluctuations in upstream raw materials, increased market competition, risk of absorbing new production capacity, product development falling short of expectations.