The net profit of the mother is predicted to increase 13.5% year-on-year

The company released its 2022 performance report. The company expects to achieve revenue of 681 million yuan, an increase of 21.4% over the previous year; the net profit of the mother was 152 million yuan, an increase of 13.5% over the previous year; after deducting non-net profit of 127 million yuan, a decrease of 1.8% over the previous year, in line with market expectations. According to our performance report estimates, the company achieved operating income of 273 million yuan in 4Q22, an increase of 114%/240% over the same period; the net profit returned to the mother in 4Q22 was 65 million yuan, an increase of 268%/502% over the same period. The company's 4Q22 performance improved rapidly over the same month-on-month period, mainly due to 3Q22 being affected by the epidemic and delays in the delivery of some orders.

Key points of interest

I am optimistic about the increase in denitrification molecular sieve sales brought about by the recovery of the heavy truck industry chain. According to the China Association of Automobile Manufacturers, domestic heavy truck sales in 2022 were 67.2 million units, down more than 50% from the previous year, which had a great impact on orders from upstream material manufacturers; at the same time, the 2022 epidemic had a partial impact on the company's daily production and order delivery. Looking ahead to 2023, we are optimistic about the recovery in demand for heavy trucks brought about by the recovery in domestic logistics and other industries. CICC Automobile Group expects annual heavy truck sales to reach 800,000 to 900,000 units, and vehicle dewarehousing combined with the country's five emission standards will basically be completed. We expect that domestic sales of the company's mobile source denitrification molecular sieve products may resume rapid growth. Furthermore, the company previously announced the signing of a purchase agreement with BASF, and the product sales area will expand from the Asia-Pacific region to a global scale. We believe that demand for molecular sieves in overseas markets is expected to gradually change to order fulfillment.

Plan products such as metocresol, TRH special molecular sieves, iron and molybdenum catalysts to help the company grow in the long term.

Specifically, 1) metocresol: the separation of metocresol and paracresol in the production process is a process difficulty. The company expects its self-developed adsorption and desorption process to greatly reduce separation costs. We think it may bring strong cost competitiveness to its metacresol products; 2) TRH molecular sieve: As a new generation of titanium-silicon molecular sieves, the company expects that with its quality and cost advantages, it is expected that it will replace titanium molecular sieve products as the main catalyst for epoxy oxidation; 3) Metal catalysts: they are an important catalyst in fine chemicals. We expect domestic production to replace imported products. Overall, we believe that the new products the company plans to invest in have high technical content and broad market space, which is expected to drive the company's long-term growth.

Profit forecasting and valuation

Due to poor downstream heavy truck sales, we lowered our 2022/23 profit forecast by 12%/18% to $152/236 million, keeping our 2024 profit forecast unchanged. The company's current stock price corresponds to the 2023/24 price-earnings ratio of 28.4/19.8x. Considering that the company's layout for new products such as cresol and the heavy truck industry chain is expected to gradually recover, we maintain the company's target price of 45 yuan, corresponding to the 2023/24 price-earnings ratio of 33.6/23.5x. The current stock price corresponds to an increase of 18.4%, maintaining the “outperform the industry” rating.

risks

The production progress of new products fell short of expectations, the price of metocresol fell sharply, and demand for heavy trucks fell short of expectations.