Event: The company released its 2024 semi-annual report and achieved revenue of 1.5 billion yuan in the first half of the year, an increase of 12.12% over the previous year. Net profit attributable to shareholders of the parent company was 0.319 billion yuan, up 27.59% year on year, net profit to mother after deduction was 0.31 billion yuan, up 33.73% year on year, with basic earnings per share of 1.11 yuan.

Key points of investment:

The performance in the first half of the year was impressive, and the share of complex agents increased steadily. In the first half of the year, the company achieved operating income of 1.5 billion yuan, a year-on-year increase of 12.12%; realized net profit of 0.31 billion yuan after deduction, an increase of 33.73%; gross margin/net interest rates were 35.75%/21.34%, respectively, +3.11/+2.59pct; the total cost ratio for the period was 10.74%, -1.31pct year on year. Looking at the second quarter alone, the company achieved operating income of 0.786 billion yuan, up 10.11% year on year and 10.14% month on month; net profit after deduction was 0.164 billion yuan, up 13.96% year on year, up 11.96% month on month; gross margin/net margin was 35.97%/21.19%, respectively, +2.03/-0.27 pct year on year, and +0.47/-0.37 pct month on month. We believe that the significant year-on-year increase in the company's performance in the first half of the year was due to the steady increase in sales of high-margin compounds combined with proper cost control.

Lubricant additives in Henan Province all increased in the second quarter compared to the same period last quarter. According to data from the General Administration of Customs, the first half of 2024 exported 0.1198 million tons, up 18.27% year on year; the export unit price was 20190.76 yuan/ton, down 12.59% year on year. Among them, Henan exported 0.0483 million tons, down 8.51% year on year; the export unit price was 20471.34 yuan/ton, down 11.37% year on year. Looking at the second quarter alone, the country exported 0.0668 million tons of lubricants, up 36.09% year on year, up 26.08% month on month; Henan exported 0.0269 million tons of lubricant additives, up 3.06% year on year, up 25.91% month on month. By the end of 2023, the company's main production capacity was located in Xinxiang City, Henan Province, and 70% of the company's lubricant products were exported. The significant increase in the export volume of lubricant additives in Henan Province in the second quarter was also mitigated, reflecting the high downstream inventory situation, and the company's product shipments resumed.

The company's production capacity is rapidly expanding and actively seizing global market share. The company currently has a single lubricant additive production capacity of more than 0.2 million tons/year, and the production capacity under construction is 0.55 million tons/year. As of the first half of 2024, the company's annual production of 0.15 million tons of lubricant additives has progressed 79%, and the annual output of 0.46 million tons of lubricant additives has reached 12%. After the fund-raising project is completed by the end of 2025, the production capacity of the company's Xinxiang base will exceed 0.7 million tons/year. In the future, as the company's fund-raising projects are actively promoted and production capacity continues to increase, the company's global lubricant additive market share will further increase, and the company's performance is expected to usher in significant growth.

The product range is complete, and the industrial chain is being expanded upward in key raw material fields. In terms of single agents, the company's product line covers various series such as cleaning agents, dispersants, ZDDP, high temperature antioxidants, etc., covering mainstream additive single agent varieties. In terms of compounds, the company has mastered various diesel, gasoline and natural gas engine oil formulation processes. Among them, CI-4, CK-4, SN, and SP grade compounds have passed the bench tests of authoritative foreign parties. The company has a complete range of single agents, which provides a good foundation for the development of compound formulations. As the company continues to diversify its range of compounds, it can better meet customer needs and increase profits. In terms of raw materials, the company invested in the establishment of Ruifeng Hongtai and Puyang Ruifeng subsidiaries to expand upstream. Currently, the company has production capacity for important raw materials such as dodecylphenol, linear long-chain alkyl benzene, and 3.5-methyl ester. At the same time, through self-production of some key raw materials, the company can ensure the safe supply and stable quality of raw materials, reduce production costs, and enhance competitiveness.

Profitability and investment suggestions: The company is one of the leading enterprises in the field of lubricant additives in China. Considering the broad market space for lubricant additives and high technical barriers, we maintain the company rating as “increase”. We expect the company's 2024-2026 revenue to be 3.249/4.052/4.451 billion yuan, net profit 0.684/0.846/0.952 billion yuan, and the corresponding EPS is 2.34/2.90/3.26 yuan, and the corresponding PE is 15.79/12.77/ 11.35 times

Risk warning: Raw material prices fluctuate greatly, project construction falls short of expectations, industry competition intensifies, downstream demand falls short of expectations, and geopolitical factors disrupt.