1H23 performance is lower than we expected.
The company announced 1H23 results: revenue 1.66 billion yuan, year-on-year-5%, return to the mother net profit of 96.99 million yuan,-41% year-on-year. Of this total, 2Q23's revenue was 995 million yuan,-4% year-on-year, and its net profit was 56.57 million yuan,-33% year-on-year. The company's 1H23 performance was lower than we expected, mainly because the demand recovery progress was lower than we expected, so that the company's cost and expense dilution effect was lower than expected.
1) the recovery of downstream demand is relatively weak, and there is still downward pressure on sales compared with the same period last year. The sales volume of 1H23's high-performance superplasticizer / functional materials was 4848cm 10900 tons, respectively, compared with the same period last year. The sales volume of 2Q23 high-performance superplasticizer / functional materials was 296,560,000 tons, respectively, compared with the same period last year. The decline was deeper than that of 1Q23, indicating that the overall sales recovery of the company was hindered against the background of weakening 2Q23 demand. 2) the price end is stable as a whole, and revenue has declined. The average price of 1H23's high-performance superplasticizer / functional materials is-5% and 3% compared with the same period last year, which is stable as a whole, affected by volume and price fluctuations, and the revenue of high-performance superplasticizer / functional materials is-11% and 5% compared with the same period last year. 3) the price of raw materials at the cost side decreased, but the dilution effect weakened, and the gross profit margin of 2Q23 was repaired compared with the same period last year. The average price of 2Q23 ethylene oxide is-19% year-on-year, which brings some benefit to the company's raw material cost, but because 2Q23's southern China base is still in the climbing stage of new capacity, and the cost dilution effect is reduced due to shrinking sales, the company's 2Q23 gross profit margin has slightly improved 1.8ppt to 35%. 4) during the period, the expense rate increased compared with the same period last year. 2Q23 sales / management / financial expense rate year-on-year + 4.4/+0.9/-0.2ppt to 12.2% Universe 7.3% Universe 1.1%. 5) the performance of the testing business is sound, and the operating cash flow has shrunk to a certain extent. The testing center of 1H23 Company achieved revenue of 350 million yuan and net profit of 76.62 million yuan, an increase of about 8% over the same period last year and remained robust in the weak external environment. However, the 1H23 testing center operating net cash flow year-on-year-24.62 million yuan to 37.65 million yuan, the company's operating net cash flow in the first half of the year a certain drag.
Trend of development
The demand is expected to recover moderately, the company increases the development of infrastructure, and there is a broad space for the development of functional materials.
We believe that with the gradual fall of the effect of the stable growth policy, the demand for civil additives is expected to pick up gradually, and the demand is expected to recover moderately. 1H23 has stepped up its infrastructure development efforts and participated in the construction of a number of national and local key projects, and we expect that the share of the company's infrastructure revenue may also increase. We believe that with the acceleration of the physical workload of capital construction, the company's leading products of functional materials (traffic materials, crack-resistant materials, etc., most of which are oriented to the field of infrastructure) are expected to benefit obviously and have a broad space for development.
Profit forecast and valuation
Due to the reduction of the company's sales volume and unit profit assumptions, we downgrade the company's 2023Universe 24e homing net profit forecast of 52.8% Universe 55.2% to 210 million / 240 million yuan, the current share price corresponds to 2023max 24e 25.5x/22.1xP/E. We maintained an outperform industry rating and lowered the company's target price by 28.6% to 15 yuan, which is less than the profit adjustment mainly because the industry is expected to recover from the bottom, corresponding to 2023x24e 30.2x/26.1xP/E, implying 18% upside space.
Risk
The recovery of demand was lower than expected, and the dilution of costs and expenses was not as expected.