Matters:
The company released its report for the first quarter of 2023, achieving revenue of 1,351 billion yuan in the first quarter of 2023, -6.1% year on year, +4.1% month on month; net profit of the mother was 67.27 million yuan, -45.1% year on year, +31.2% month on month.
Commentary:
Product prices have declined, raw materials have risen, and the gross profit of the main business in 23Q1 has been compressed. On the product side, the market prices of 23Q1's main products in the polyester sector declined: the average price of polyester industrial yarn was 8,939 yuan/ton, +0.5% year on year, -1.7% month on month; the average export price of polyester curtain cloth was 2.66 US dollars/kg, -16.9% year on year and -8.0% month on month.
Looking at raw materials, the prices of PTA, MEG, and PVC, the main raw materials in the 23Q1 polyester and plastics sector all rebounded month-on-month: the average price of PTA was 5612 yuan/ton, -0.8% yoy, +1.1% month-on-month; the average price of MEG was 4143 yuan/ton, -19.8% yoy, +4.6% month-on-month; the average price of PVC was 6332 yuan/ton, -28.4% yoy, +5.3% month-on-month.
On the profit side, the average price difference of polyester industrial yarn was 2,754 yuan/ton, +18.0% year on year, -8.8% month on month, and profit compression. The company's overall gross profit margin in 23Q1 was 13.7%, -5.6pct year-on-year, and -1.2pct month-on-month. Although the gross margin of the main business declined month-on-month, compared with 22Q4, the company's expenses during the period were drastically reduced, and the net sales interest rate rebounded, mainly due to a reduction in operating losses. 23Q1 The company's net sales profit margin was 5.01%, +1.1pct over the previous month.
The certification of automotive wire products at the Vietnam base was gradually implemented in '23, and the profit side is expected to improve. Due to the double pressure of the industry boom and automotive product certification in '22, the operating rate of the company's new production capacity in Vietnam was low. Combined with interest rate hikes, exchange losses due to US dollar debt were high, and operating pressure was high. Since '23, along with capital increases for Vietnamese companies to repay US dollar liabilities, exchange rate fluctuations have reduced the impact of exchange rate fluctuations on profits; in addition, certification of automotive wire products has been accelerated, and the Vietnam base is expected to experience significant improvements on the profit side. As of April 2023, the current production capacity operating rate of the Vietnam base has reached 90%. Currently, some customers have been able to supply small batches.
Based on the two major industrial chains of polyester and plastics, it focuses on developing new products and materials. Looking at future development, the company's main business will focus on automotive wire certification at the Vietnam plant and building production capacity for the remaining 31,000 tons of curtain cloth; subsequent new capital expenditure will focus on research institutes and innovative product projects. As one of the most representative products in the new materials business, the company's photovoltaic reflective film products have been successfully used in overseas Middle Eastern owners' projects and received good feedback from customers. Currently, the company is expanding its business both domestically and abroad, actively connecting with customers for certification; and improving products to the second generation to improve performance such as reflectivity and weather resistance. As the construction and verification progress of desert photovoltaic power plants at home and abroad continues to advance, the reflective film business is expected to become a new profit growth point for the company.
Investment advice: Considering that the company's main business, the chemical fiber and plastics industry, is in the economic recovery stage, new product certification continues to advance, which is expected to gradually contribute profits to the company; we maintain our previous profit forecast for the company. We expect the net profit of 2023-2025 to be 404/522/576 million yuan, corresponding to EPS 0.35/0.45/0.49 yuan from 23-25. The current market capitalization of PE corresponding to the current market capitalization is 16x, 12x and 11x respectively. Referring to the company's historical trading PE (TTM) center and the valuation of comparable companies, 22 times PE was given in 2023, corresponding to the target price of 7.70 yuan, maintaining the “recommended” rating.
Risk warning: The progress of verification of new production capacity fell short of expectations, product certification results fell short of expectations, raw material prices fluctuated greatly, and industry sentiment declined.