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The company released its mid-2023 report that revenue in the first half of the year was 1.829 billion yuan, year-on-year-19.1%, month-on-month-12.2%; return-to-mother net profit 152 million yuan, year-on-year-42.8%, month-on-month-18.7%; deduction of non-return net profit 166 million yuan, year-on-year-35.9%, month-on-month-24.5%. Among them, Q2 achieved revenue of 933 million yuan in a single quarter,-27.3% year-on-year, + 4.1% month-on-month; net profit of 81 million yuan,-51.2%, + 13.1%; deduction of non-return net profit of 98 million yuan,-39.2%, month-on-month + 44.4%.

Comments:

The overall decline of the 23H1 industry has hurt the company's performance. Over the past 23 years, biodiesel prices at home and abroad have hit bottom driven by the joint decline of diesel and vegetable oils: the average price of FAME on 23H1 NESTE's official website is 1252.3 US dollars / ton,-33.9% compared with the same period last year; and the average price of Baichuan waste oil biodiesel is 8335.9 yuan / ton,-24.5% year-on-year. Compared with the peak season of Q2 in previous years, on the one hand, the 23-year downturn is that overseas refineries are still in the de-storage stage of raw wood; for Chinese enterprises, the new Traces raw material registration system and ISCC raw material review are also key factors hindering economic repair: before the raw material review is completely completed, overseas traders and refineries are afraid to place large orders for firewood purchased because of the risk of waste oil qualification certification. According to the export data of raw wood in the first half of the year, China's export volume of raw wood reached the annual peak of 263000 tons in January, and then fluctuated downwards, with an export volume of 145000 tons in June. As the largest raw wood enterprise in domestic production, sales and export volume, Outstanding Xinneng was also greatly affected in the first half of the year.

The price of overseas raw wood rebounded in June and is expected to be passed on to China after the ISCC review. Since June, vegetable oils, led by rapeseed oil and palm oil, have risen sharply, mainly because the World Meteorological Organization announced the formation of El Ni ñ o conditions to terminate the Black Sea agreement with Russia, resulting in food supply imbalance expectations. So far, the futures prices of rapeseed oil and palm oil are 9086 yuan / ton and 7392 yuan / ton respectively, up 19.4% and 15.4% from the beginning of June. Supported by the raw material side, overseas biodiesel prices have continued to rebound sharply, with the current price of NESTE FAME firewood at $1190 per tonne, up 34 per cent over the same period. However, from the perspective of domestic prices, the price of waste oil and firewood remains unchanged at 8000 yuan per ton compared with the beginning of June, mainly because the raw material review of Chinese raw wood enterprises by ISCC has not been completed and the order is insufficient. We believe that with the end of the ISCC review, China's waste oil and firewood, as a global price depression, is expected to usher in a price rebound.

The refined technology strengthens the company's advantages, and the construction of new production capacity advances steadily. As the largest domestic raw wood enterprise with the strongest production and marketing capacity, the company continues to strengthen its advantages and build the industrial layout of "biomass energy integration". As of 23H1, the methyl esterification conversion rate of the company's waste oil has reached 99%, and the yield of high-quality biodiesel products is more than 90%. The high-quality yield has further improved 0.5pct compared with 22 years, which is the leading level in the industry.

In terms of project construction, the company's 200,000 t / a hydrocarbon-based biodiesel (and bio-aviation coal) production line has completed land exploration, long-term equipment has been ordered one after another, and the project is expected to be completed in about 2 years after the start of the project.

Investment advice: the raw wood industry bottomed out in the first half of the year, and the company's profits were greatly affected, and it is expected that the profit side will be gradually repaired after the raw material review is completed in the second half of the year; in addition, the company's layout in the field of bioaviation coal is also expected to bring an effective improvement in long-term profits. We adjust the profit forecast as follows: from 2023 to 2025, the net profit of homing is RMB 552pm 708 million (the previous value is RMB 637pm). Corresponding to EPS3.02/4.60/5.90 yuan, the current market capitalization corresponding to PE is 16x, 10x and 8x respectively. With reference to the company's historical trading PE (TTM) hub and comparable company valuation, it is given 15 times PE in 2024, corresponding to the target price of 69 yuan, maintaining a "strong push" rating.

Risk hints: the prices of crude oil and vegetable oils fluctuate greatly, major changes have taken place in industry policies, major adjustments have taken place in the pattern of foreign trade, and the research and development of new technologies and new products lags behind the market's advanced technologies.