The company released its 2022 annual report: it achieved revenue of 2,399 million yuan in 2022, an increase of 27.53% over the same period, net profit of 317 million yuan, an increase of 401%, after deducting non-net profit of 305 million yuan, an increase of 406%. It plans to transfer 3 shares for every 10 shares.

Revenue rose steadily, performance increased sharply, and profit levels increased dramatically. Expenses improved during the period, and the sharp increase in net profit was due to an increase in the share of the fine chemical business. Gross sales margin and net profit margin were 33.66% and 20.87% respectively, up 16.16 and 15.28 pct respectively over the previous year. The cost rate for the same period when R&D investment was increased was 5.49%, down 0.45 pct from the previous year.

Actively expanding the integrated layout of masterbatches, melamine helped increase performance 1) Masterbatch: Affected by declining consumption, it achieved revenue of 687 million yuan, a slight decrease of 2.69% from the previous year. With its technology and high-quality customers, there was no major decline, and market share is estimated to have increased slightly. The company is actively expanding the integrated layout of masterbatch titanium dioxide, making full use of Dazhou's natural gas and mineral resources, local government strong support and well-equipped parks to guarantee the supply of raw materials and raise market voice and profit levels.

2) Fine chemicals: Driven by factors such as strong downstream demand, sales revenue and gross margin increased dramatically, achieving revenue of 1,639 billion yuan, an increase of 48% over the same period. Among them, polychlorinated cyanide achieved revenue of 1,368 million yuan, an increase of 52% over the same period, contributing the main profit. Its high entry threshold and scarce licenses have a high barrier.

The diaphragm business continues to expand customers, production capacity has been gradually released and continues to expand production. The contribution performance is that at present, all 4 diaphragm production lines have been completed and put into operation. The main work of Q2Q3 in '22 was to send samples for inspection. At the same time, due to the long certification cycle of power battery separators and many influences from battery enterprise certification and factory inspection, Q4 production capacity was gradually developed. In '22, the wet diaphragm revenue was achieved, and a total of 300 million square meters of production capacity will be released in 23 years. The company continues to expand customers and resolutely push forward production capacity. In '23, it may add 400 million square meters of production capacity, with a planned production capacity of 1.3 billion square meters.

Actively laying out the sodium electricity Prussian system industry chain forms a closed loop, building a Prussian system sodium electric faucet upstream raw material terminal company with multi-dimensional advantages to create a production capacity of 300,000 tons of sodium cyanide to provide raw material support. Integration is conducive to securing supply and reducing costs at the same time. The positive and negative electrode materials terminal and Qicai Chemical established a joint venture company, Meicai New Materials to build a battery-grade Prussian Blue (white) project with an annual output of 180,000 tons; cooperated with Starry Sky Sodium Electric to absorb its technical patents, successfully overcoming the problem of crystalline water in Prussian blue batteries; wholly-owned acquisition of Huihong Technology obtained a professional technical team and production line, which can quickly achieve mass production of battery-grade Prussian blue cathode materials through technical improvements to the original production line. The downstream battery terminal cooperated strategically with Hunan Cube New Energy to promote the industrialization of Prussian sodium electricity, and the strategic cooperation explores downstream applications to verify the viability and economy of the Prussian route for sodium batteries.

Investment advice: The company's net profit is expected to reach 4.11/584/850 million yuan on 23/24/25 (previous value of 509/745 million yuan in 23/24). The corresponding P/E is 20x/14x/10x, maintaining the “buy” rating.

Risk warning: New energy vehicle development falls short of expectations; capacity expansion product development falls short of expectations; material price fluctuations, etc.