Incident: On April 19, the company released its report for the first quarter of 2023. The company achieved operating income of 283 million yuan, a year-on-year decrease of 46.77%, total profit of 46 million yuan, and net profit attributable to shareholders of listed companies was 41 million yuan, a year-on-year decrease of 78.59%; net profit not attributable to shareholders of the parent company was 32 million yuan, a year-on-year decrease of 82.72%.

Competition in the industry intensified and spread further, and the first-quarter results were under significant pressure. In the second half of 2022, due to the dual influence of the supply side and the demand side, competition in the industry further intensified. Further spread in the first quarter. 2023Q1 achieved revenue of 283 million yuan, a year-on-year decrease of 46.77%, total profit of 46 million yuan, net profit of 41 million yuan, a year-on-year decrease of 78.59%; net profit attributable to shareholders not belonging to the parent company was 32 million yuan, a year-on-year decline of 82.72%, achieving a gross profit margin of 19.50%, a year-on-year decrease of 26.46 pcts, a year-on-month decrease of 9.31 pcts, achieving a net interest rate of 14.35%, a year-on-year decrease of 36 pcts, a year-on-month decline of 36 pcts, a year-on-month decline of 36 pcts, a year-on-month decline of 36 pcts, a year-on-month decline of 36 pcts, a month-on-month decline 6.73 pcts.

Prices of core products fluctuated greatly, which was the main reason for poor performance. 2023Q1's core products, aminosilane, epoxy silane, sulfur-containing silane, vinyl silane, and orthosilicate, achieved sales of about 1900, 1075, 1475, 2032, 2,402 tons, respectively; revenue of 0.55, 0.38, 0.30, 0.37, and 36 billion yuan was achieved. Affected by industry sentiment, the company's product prices fluctuated greatly. The average prices of amino silane, epoxy silane, sulfur-containing silane, vinyl silane, and orthosilicate Q1 were 29071, 35775, 20489, 18238, 26246, 15126 yuan/ton, down 54.63%, 34.73%, 50.97%, 18.89%, respectively.

Long-term optimism is placed on the cost advantages of the company's integrated layout, and production expansion projects at the three major bases are progressing in an orderly manner. The company is proceeding with the construction of the three major bases in an orderly manner, and 2,000 tons of aerogel have already completed the relevant production design. In terms of project progress, the company's “Special Silicone Material Project with an Annual Output of 23,000 Tons” is expected to be put into operation by the end of 2023; the “Annual Production of 65,000 Tons of Silicone New Materials Project” is expected to be put into operation in July 2023; “Annual production of 300,000 tons of functional silane project”

The first phase is expected to be completed in December 2024. In addition, the company signed a new agreement to build a “project with an annual output of 210,000 tons of silicon-based new materials and 0.5 million tons of cobalt-based new materials”. While strengthening new silicon-based materials, the company also extended to the field of cobalt-based new materials to continuously optimize the product structure; a new investment agreement was signed to build a “new silicon-based and aerogel material project with an annual output of 300,000 tons”, which is expected to be put into operation in October 2024.

Investment advice: The company's earnings per share for 2023-2025 are expected to be 1.82, 2.42 and 3.07 yuan respectively, and the corresponding PE is 18, 13 and 10 times, respectively. In the long term, we are still optimistic about the company's cost advantage and maintain the “buy” rating.

Risk warning: downstream demand falls short of expectations, risk of product price fluctuations, and progress of production expansion projects falls short of expectations.