The performance was in line with expectations: the company achieved operating income of 164 million yuan, an increase of 3.07% over the same period last year, and the net profit belonging to the parent company was 27.16 million yuan, down 9.77% from the same period last year, and earnings per share was 0.20 yuan, which was in line with our expectations. The company's silica sales were 29800 tons, an increase of 17.6% over the same period last year, but due to fierce market competition and the low-end series of products of Jiangxi Wanzi subsidiary, the gross profit margin decreased by 2.23% to 38.11%.
Jiangxi subsidiary began to contribute to its performance: the Jiangxi Wanzi 30, 000-ton silica project was put into production in 2012, with an income of 36.55 million yuan and a net profit of 2.33 million yuan in 2013. At present, the operating rate is still not high, the silica produced by Jiangxi Wanzai is mainly in the low-end series, and the gross profit margin is significantly lower than that of Jilin factory. However, it has the advantages of being close to customers and raw materials, and the profit is expected to improve continuously with the increase of operating rate in the future.
The green tire specification will be issued, and the downstream customers of the company will determine: the draft of "Green Tire Technical Specification" organized by China Rubber Industry Association has been completed and is expected to be officially released in the first quarter of 2014. China will implement the green tire label (non-mandatory tire classification) system, and the industrialization of green tire is taking shape. The company participated in the capital increase and share expansion of Sichuan rubber in 2013. Sichuan rubber is under construction to increase the annual production of 7 million high-performance green multiplicative semi-steel radial tire technical renovation projects, Sichuan rubber promised to produce materials (white carbon black) more than 80% of the consumption by the company. At the same time, the annual report reveals that the development of silica for green tires has been completed, and downstream customers are in the trial stage, which is optimistic about the company's prospects in this field.
Investment advice: we expect the company's revenue growth from 2014 to 2016 to be 23.6%, 27.3% and 42.3% respectively, with earnings per share of 0.27 yuan, 0.37 yuan and 0.55 yuan respectively. Benefiting from the global promotion trend of green tires, maintain the investment rating of-A, with a six-month target price of 8.0 yuan, equivalent to a dynamic price-to-earnings ratio of 30 times in 2014.
Risk tips: rising prices of raw materials and lower-than-expected market development