Incident: The company released its semi-annual report for 2023. During the reporting period, it achieved operating income of 1,258 million yuan, a year-on-year decrease of 9.92%, net profit of 38 million yuan, a year-on-year decrease of 28.24%, after deducting non-net profit of 133 million yuan, a year-on-year decrease of 24.01%; of these, net profit for the second quarter was 595 million yuan, a year-on-year decrease of 12.71%, a year-on-year decrease of 10.1%, and a year-on-year net profit of 59.6 million yuan, a year-on-year decrease of 23.9%.
Overall product prices declined in the first half of the year, putting pressure on performance. The company's main business is aliphatic amines, organic solvents, and synthetic fragrances. The main products, isopropylamine, and isopropyl alcohol, have a strong competitive advantage in China in terms of device scale, process technology, production cost, and market share. In the first half of 2023, the company's aliphatic amine achieved revenue of 661 million yuan, down 11.68% year on year, sales volume 53,800 tons, up 4.23% year on year, average sales price 12,300 yuan/ton, down 15.26% year on year; organic solvents achieved revenue of 226 million yuan, up 0.79% year on year, sales volume 29,900 tons, up 5.09% year on year, average sales price 7782 yuan/ton, down 4.10% year on year; synthetic fragrances achieved revenue of 227 million yuan, down 19.54% year on year, sales volume 0.65 million yuan Tons, down 19.79% year on year, average sales price of 35,000 yuan/ton, up 0.31% year on year. During the reporting period, the average purchase prices of acetone and propylene, the company's key raw materials, decreased by 2.57% and 16.92%, respectively, year-on-year, and the cost side of raw materials declined.
The core product market was weak month-on-month in the second quarter, and there was a clear rebound in the third quarter. The overall gross profit margin of 2023Q2 company was 22.7%, down 2.1 pct. Among them, fatty amine revenue was 283 million yuan, 24.87% month on month, sales volume 24,500 tons, down 16.2% month on month, average sales price 11,500 yuan/ton, down 10.35% month on month; organic solvent revenue was 119 million yuan, up 11.46% month on month, sales volume 16,600 tons, up 2,568% month on month, average sales price 7,366 yuan/ton, down 11.31% month on month; flavor and fragrance revenue was 107 million yuan, down 11.31% month on month; 11.74%, with a sales volume of 0.31 million tons, a year-on-month decrease of 5.83%, and an average sales price of 34,000 yuan/ton, a year-on-month decrease of 6.28%. Looking at the core product market, the average market prices of 2023Q2 isopropylamine and triethylamine were 10,900 and 14,500 yuan/ton respectively, down 23.2% and 13.1% from 2023Q1, respectively, and the average isopropyl alcohol market price was 6,900 yuan/ton, up 2.8% from 2023Q1. Since the third quarter, the markets for these core products have clearly rebounded, and the average prices in the isopropylamine, triethylamine, and isopropyl alcohol markets have risen 17.9%, 13.8%, and 8.1%, respectively, from 2023Q2, which helped improve the company's performance in the third quarter.
Continuously expand new products and projects, and there is plenty of room for growth in lithium extraction and extraction. By the end of June 2023, Ningxia Xinhua Company's 74650 tons/year synthetic fragrance product project was 80% in progress. The first phase of the project had a production capacity of 26,650 tons, of which 10,000 tons were raw materials for personal use, with an actual perfume production capacity of 16,650 tons; the second phase had a production capacity of 48,000 tons. The first phase is expected to be completed by the end of 2023. Currently, some products have been tested. In 2023, the Salt Lake Lithium Extraction Team of the Company Research Institute made a major breakthrough in lithium resource extraction and recycling. In the field of lithium extraction from Salt Lake, the company, Salt Lake Co., Ltd. and Lanke Lithium signed an industrial test project for the efficient separation (extraction method) of precipitated lithium mother liquor. The project was successfully put into operation in early July. In the field of lithium battery recycling, the company Yaoning Technology reached a cooperation agreement. The two sides jointly funded the construction of a 10,000 tons/year waste lithium recycling production line; the company signed a product sales contract with Grimmie, and the extractant was successfully used in Grimmie's battery recycling production line.
Maintain an “increase in holdings” investment rating. Without considering the performance contribution of the lithium extraction sector, it is estimated that in 2023-2025, the company's net profit to the parent will be 334 million, 415 million yuan, and 484 million yuan respectively, and EPS will be 1.80, 2.24, and 2.61 yuan respectively. The current stock price corresponding to PE is 18, 15, and 13 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: product prices are falling, raw material prices are rising, and the commissioning of new projects falls short of expectations.