The company released its report for the first quarter of 2023. The company achieved revenue of 82 million yuan in the first quarter of 2023, down 14.88% from the previous year, down 16.39% from the previous month, and the net profit of the mother was 0.09 million yuan, down 38.82% from the previous year and an increase of 0.67% over the previous month. Affected by contraction in domestic demand and supply shocks, the polypropylene filament boom declined and profits bottomed out in the first quarter. Based on a differentiated strategy, the company is expected to recover polypropylene profits as the initial issuance and convertible bond projects are completed and put into operation.

The boom in the polypropylene industry has bottomed out, and the expansion of production based on differentiation is expected to usher in profit recovery. Influenced by continued downturn in downstream demand in 2022, the polypropylene industry's boom declined. In the first quarter of 2023, the slow downstream recovery caused polypropylene prices to remain at the bottom. According to Baichuan Yingfu data, the average price of polypropylene filament in the first quarter of 2022 was 11,000 yuan/ton, which is the same as Q4 2022. As downstream demand continues to recover and the price of polypropylene, the polypropylene industry's profit is expected to bottom out. Furthermore, based on a differentiated strategy, the company accelerates the development and downstream market expansion of functional fibers. As the polypropylene fiber expansion project with an annual output of 23,000 tons and the annual production of 10,000 tons of BCF and 0.5 million tons of DTY projects are gradually put into operation, the company's production capacity will exceed 70,000 tons, further improve the product system and increase market share. At the same time, the profitability of differentiated polypropylene fiber is significantly stronger than that of conventional polypropylene fiber, and the company's overall profitability is expected to be restored.

Cooperate with leading wind power companies to deploy carbon fiber to explore new growth points. According to the company announcement, the company plans to establish Shanghai Nata New Material Technology Co., Ltd. in a joint venture with the leading wind power company Electric Wind Power. The company will invest RMB 440 million and hold 80% of the shares. After the joint venture is established, Guangdong Nata plans to invest in the construction of 10,000 tons of carbon fiber and 60,000 tons of differentiated acrylic projects per year. Furthermore, Electric Wind Power will prioritize the procurement of joint venture products under the same market conditions. After the joint venture is put into operation, the joint venture will enhance the company's supply capacity for high-end fibers and open up new business growth points.

The first coverage gave an “increase in holdings” rating: based on a differentiated strategy, the company's differentiated polypropylene supply capacity will be enhanced after the initial launch and convertible bond projects are put into operation. Furthermore, the company's joint venture with leading wind power companies to lay out carbon fiber is expected to open up new performance growth points. It is expected that the company's net profit to the mother in 2023-2025 will be 0.60, 1.38, and 219 million yuan respectively. The corresponding PE will be 40X, 17X and 11X respectively, giving a “increase in holdings” rating.

Risk warning: the release of new production capacity falls short of expectations; risk of falling demand