Core views:

The company published the first quarter report of 2023. 2023Q1 achieved revenue of 415 million yuan, -5.85% year-on-year, -0.24% month-on-month; achieved net profit of 84 million yuan, +0.33% year-on-year, +21.74% year-on-year; basic earnings per share of 0.20 yuan/share.

The boom in the tire industry is picking up at the bottom, driving the company's white carbon black sales to increase. As the economy continues to recover, the domestic tire industry is gradually picking up. Currently, the sales volume of tire companies and the average price of a single tire have picked up. It is expected that downstream demand for white carbon black, the raw material for tires, will continue to pick up. 2023Q1's white carbon black production was 62,700 tons, +3.99% year on year, and sales volume was 65,500 tons, +3.79% year on year.

“Liquid gold” is driving demand for highly dispersed silica. With the implementation of the new labeling law in Europe and the increase in the penetration rate of the green tire market in Asia and North America, the global green tire market will grow rapidly. Domestic tire manufacturers will accelerate product verification of green tires. Combined with the expansion of production of Yikai's new material “liquid gold”, demand for highly dispersed silica is expected to be rapidly released. According to the company's daily related transaction announcements, the total amount of transactions with Yikai New Materials in 2022 was 13.154,300 yuan, and the estimated transaction amount in 2023 is 35 million yuan.

Independently develop technology to produce silica from rice husks to continuously enhance the added value of the project. According to the company's announcement, it is proposed to raise 210 million yuan for the Anhui Axi biomass project. The company uses rice husk instead of natural gas as fuel and uses rice husk ash from rice husk combustion as a silicon base to replace quartz sand to produce highly dispersed silicon dioxide. After the technical reform of the project, it is also possible to add by-products such as activated carbon and steam to improve the economic efficiency of the project.

Production capacity continues to expand, and new projects are advancing at an accelerated pace. The company currently has a production capacity of 330,000 tons, a production capacity of 75,000 tons under construction, and an investment of 129 million yuan. At the same time, it is proposed to use convertible bonds to raise capital to build the second phase of the Thai project with an annual output of 25,000 tons.

Profit forecasts and investment recommendations. The company's EPS is expected to be 1.17/1.37 yuan/share in 23-24, respectively. Referring to the valuation of comparable companies, the PE valuation is given 20 times the 23-year performance, corresponding to a reasonable value of 23.39 yuan/share, maintaining the “buy” rating.

Risk warning. Risk of fluctuations in raw material prices; risk of production safety; penetration rate of green tires.