Incident 1: The company released a report for the first quarter of 2023. 2023Q1 achieved operating income of 3.37 billion yuan, an increase of 0.1% over the previous year, an increase of 40% over the previous month; it achieved net profit of -0.6 billion yuan, a year-on-year decrease of 200 million yuan, and a decrease of 80 billion yuan over the previous month.

Incident 2: The company announced that it intends to invest in the construction of a multi-purpose workshop and API workshop project in Yingtan National High-tech Zone, Jiangxi through its wholly-owned subsidiary Jiangxi Chengzhi Biotechnology Co., Ltd., with an estimated total investment of 350 million yuan.

Incident 3: The company announced that it intends to invest in the construction of a new material integrated propylene value chain project through Nanjing Chengzhi Yongqing Energy Technology Co., Ltd., a wholly-owned subsidiary of Nanjing Chengzhi Yongqing Energy Technology Co., Ltd., in the Jiangbei New Material Science and Technology Park in Nanjing. The total investment amount of the project is 1.05 billion yuan.

Comment:

Prices of some products in the clean energy sector fell sharply, and 23Q1 performance declined slightly. Prices of some products in the 2023Q1 company's clean energy sector have declined. The prices of 2023Q1 vinyl, propylene, and n-butanol were 921 US dollars/ton, 7410 yuan/ton, and 7,675 yuan/ton, respectively -20.8%, -9.7%, -23.8% year-on-year, and +3.3%, -0.2%, and +1.6%, respectively. The company's profitability declined due to the fall in prices of its main products. In terms of raw materials and power costs, the prices of anthracite and thermal coal were 1,831 yuan/ton and 741 yuan/ton respectively in March 2023, which were +2% and -14% year-on-year respectively, and -7% and +2% month-on-month respectively. Prices of some products in the company's clean energy sector dropped significantly in Q1 2023, and the company's performance declined somewhat.

It is proposed to invest in the construction of multi-purpose workshops and API projects to gradually improve the “two wings in one” pattern. In order to further expand the development space in the biomanufactory field, the company plans to invest in the construction of a multi-purpose workshop and API project through Chengzhi Bioengineering. The estimated construction period is 24 months. The estimated total investment amount of this project is 350 million. The first phase of the project is a multi-purpose workshop and the second phase is an API workshop. The scope of construction includes building a new multi-purpose workshop (producing no more than 30 tons of high-value raw materials per year, including not limited to enzyme preparations, ecodaine, ergothion, hyaluronic acid, collagen, vitamin K2, sialic acid, 5-hydroxytryptophan, etc.), and a new API workshop (annual output of 60 tons of S-adenosylmethionine, 90 tons of glutathione per year), etc. The commissioning of the project will enrich the company's product types in the biomanufactory field, help the company accelerate the iterative upgrading of the industry, steadily implement the “integrated two wings” development strategy with the clean energy industry as the core body, the semiconductor display materials industry and the biomedical industry as the “two wings”, and open up room for future growth in the company's performance.

It is proposed to invest in a propylene value chain project, and the new materials sector continues to gain strength. According to the company's announcement on April 1, 2023, in order to further expand the development space in the field of new chemical materials, the company plans to invest in a new material integrated propylene value chain project. The scope of construction of the project includes 250,000 tons/year octanol production plant, storage and transportation projects, etc.; the estimated construction period is 18 months, and the project is currently in the pre-approval stage. In addition, the company has two olefin production plants in Nanjing. The total production capacity of ethylene, propylene and butadiene is close to 1 million tons/year. As of April 2023, about 70% of the company's olefin products are sold directly abroad. After the propylene value chain project is put into operation, it is beneficial for the company to further extend the propylene industry chain downward, increase the added value of terminal products and enhance the company's profitability. Furthermore, after the project is completed and put into operation, the total octanol production capacity of the company's subsidiary Nanjing Chengzhi and Chengzhi Yongqing will increase to 450,000 tons/year, which will form a certain scale advantage and have a synergistic effect, thereby increasing the company's market voice for octanol products and enhancing the company's profitability.

The Qingdao West Coast New Area State-owned Assets Administration became the actual controller of the company, using state-owned capital to continuously improve the industrial chain. According to the company's announcement on December 30, 2021, Qingdao Haikong, Guohua Investment, Nanchang Industrial Control Investment and Tsinghua Holdings signed a “four-party agreement”. After the transaction is completed, Qingdao Haikong will hold 98.23% of the shares of Chengzhi Ke Rong, the controlling shareholder of the company, and Nanchang Industrial Control Investment will hold 1.77% of Chengzhi Ke Rong's shares; Qingdao Haikong Financial Holdings and Nanchang Industrial Holdings Investment indirectly hold 375 million shares of Chengzhi Co., Ltd., a shareholding ratio of 29.90%. In addition, the parent company of Qingdao Maritime Control Group was established in November 2018 and is a state-owned capital holding group directly under the Qingdao West Coast New Area Management Committee. After this change in equity was completed, Maritime Holdings Group became the largest shareholder of Chengzhi Co., Ltd., and the Qingdao West Coast New Area State-owned Assets Administration became the actual controller of Chengzhi Co., Ltd. After this change in rights, the company will make full use of the state-owned capital and industrial resource endowments of the Maritime Control Group to improve the layout of key links in the company's industrial chain and open up room for the company's future performance to increase.

Profit forecasting, valuation and ratings: The company adheres to the “one in two wings” strategy and accelerates the deployment of new production capacity. The AP joint venture hydrogen project in the clean energy sector and the industrial hemp project in the life technology sector are progressing smoothly. We are optimistic about the company's future development prospects. Therefore, the company's 2023-2024 profit forecast was maintained, and the 2025 profit forecast was added. Net profit for 2023-2025 is expected to be 438/488/552 million yuan respectively, equivalent to EPS 0.36/0.40/0.45 yuan/share, maintaining the “buy” rating.

Risk warning: downstream demand falls short of expectations, technology iteration risks, and product prices fluctuate greatly.