Performance review
2022 results are in line with market expectations
The company announced its 2022 results: operating income of 21,226 billion yuan (YoY +27.4%), net profit of 3,003 billion yuan (YoY -11.0%), net profit after deducting non-return to the mother increased 16.6% year-on-year to 2,759 million yuan.
The company's investment income in 2022 fell sharply year on year, the performance of the dye and intermediates business was steady, the real estate business gradually expanded, and net profit after deducting non-net profit increased significantly year on year. The company's 4Q22 revenue was 7.803 billion yuan (YoY +90.6%), and the net profit returned to the mother was 1.28 billion yuan (YoY +247.4%). The 4Q22 large-scale real estate sales revenue was confirmed, and the performance recovered significantly from month to month. The company's dye business revenue in 2022 was 8.673 billion yuan (YoY -1.8%), sales volume decreased 1.64% year on year, gross profit margin was 31.91% (down 0.61 pct year on year); 2022 intermediates business revenue was 3,975 billion yuan (YoY +1.3%), sales increased 0.77% year on year, and gross profit margin was 46.57% (down 4.80 pct year on year). Against the backdrop of increased competition in the industry, the company's leading position in the dye and intermediates business is stable, and it is still the main source of profit. In 2022, the company's Shanghai Datong Project, Shangyu High Speed Rail New Town J3 Plot Project, and Tianheyuan Project confirmed real estate sales revenue. Real estate revenue was 4.498 billion yuan (YOY +2644.8%), with a gross profit margin of 24.22% (up 0.81 pct over the previous year). The company announced the 2023 employee stock ownership plan (draft). Employees intend to transfer no more than 3.00% of the company's current share capital, and the price for employees to transfer the company's shares to be repurchased is 8.12 yuan/share.
Development trends
Competition in the dye industry is intensifying. According to data from the National Bureau of Statistics, enterprises above the size of the printing and dyeing industry produced 55.622 billion meters of printed and dyed cloth in 2022, a year-on-year decrease of 7.52%. Currently, the dye industry is facing the triple pressure of falling demand, intensifying supply-side competition, and weakening expectations. According to data from Zhuochuang Information, as of April 14, 2023, dispersed black ECT/ECO 300% (East China) and active black WNN 200% (East China) closed at 19.5 and 21 yuan/kg (same as -7.1% at the beginning of the year). According to the company's operating data, prices of the main raw materials of disperse dyes, such as aniline, para-nitroaniline, and chloroprene, have declined since the second half of 2022. Combined with the decline in coal prices since 2023, we expect that the company's cost pressure may ease somewhat, but dye prices will remain low in the short term, and the inflection point may have to wait for excess production capacity after full competition to be cleared out.
Focus on the production of special chemicals and expand the industrial chain to establish competitive advantages. The company has a production capacity of 114,500 tons/year for dye intermediates such as diphenol, hydroquinone and 3-aminophenol, with obvious integration advantages. Although there has also been a small amount of new production capacity for dye intermediates in recent years, the overall competitive pattern is stable. The company said it will strengthen the control position of strategic intermediate raw materials and become a world-class specialty chemical production service provider.
Profit forecasting and valuation
Competition in the dye industry has intensified, the company has the advantage of integrated scale, and the real estate business is gradually expanding. We maintain our 2023 net profit forecast of 3.313 billion yuan. The net profit forecast for 2024 was introduced at $3.454 billion.
The current stock price corresponds to the 2023/2024 price-earnings ratio of 9.8 times/9.4 times. The company's financial assets are of high quality, and its main business is growing. We maintain a target price of 12.20 yuan, corresponding to a price-earnings ratio of 12.0/11.5X in 2023 and 2024, and maintain an outperforming industry rating. There is room for an increase of 22.1% from the current stock price.
risks
Demand for dyes fell short of expectations, production capacity for dye/intermediates expanded drastically, and there is a risk that the market will decline sharply.