Incident: The company released its 2023 annual report on August 29. 1H23 achieved revenue of 316 million yuan, YoY +0.2%; net profit of 209 million yuan, YoY +13.3%; deducting non-net profit of 188 million yuan, YoY +7.3%.
The results are within the range of previous performance forecast data.
2Q23 was affected by the pace and there were phased changes; 1H23 increased profitability. 1) Looking at a single quarter:
In 2Q23, the company achieved revenue of 109 million yuan, YoY -23.4%; net profit of 61 million yuan, YoY -35.3%; after deducting non-net profit of 46 million yuan, YoY -45.6%. 2Q23 was affected by the pace of the customer's quarterly delivery schedule, and the product delivery schedule slowed down compared to 1Q23. 2) Profitability: 2Q23 gross margin fell 0.8 ppt to 74.3% year on year; net profit margin fell 10.3 ppt to 55.8% year on year. 1H23 gross margin increased 5.8ppt to 77.6% year on year; net margin increased 7.7ppt to 66.3% year on year.
The progress of the major contract was 35%; production capacity was greatly increased in the third phase of the project. By product, 1H23:1) Carbon fiber achieved revenue of 250 million yuan, YoY -6.0%, accounting for 79% of total revenue; 2) Carbon cloth achieved revenue of 70 million yuan, YoY +32.4%, accounting for 21% of total revenue. As of June 30, 2023, the company signed a major contract for the daily operation of carbon fiber and fabrics (total amount of 2.169 billion yuan) with client A at 34.89%, confirmed revenue of $274 million for 1H23, and a cumulative confirmed revenue of 670 million yuan. In 2022, the company will raise an additional 2 billion yuan, mainly for the construction of high-performance carbon fiber and fabric product projects. After completion, it will have a production capacity of 1,500 tons (12K) of high-performance carbon fiber and fabric products per year to build polyacrylonitrile yarn production lines, oxidation carbonization lines, carbon fiber fabric workshops and related supporting facilities on the company's existing land and new land. As of June 30, 2023, the progress of the project is 62.34%. Civil construction, equipment installation and commissioning have basically been completed. Currently, it is in the process commissioning and trial production stage, and is expected to reach scheduled use status by December 31, 2025.
Accelerate new product development; operating cash flow increased 1,349% year over year. The cost rate for the 1H23 period increased by 18.2ppt to 23.2% year on year: 1) The sales expense rate decreased by 0.2ppt to 0.6% year on year; 2) The management expense rate increased by 1.8ppt to 6.0%; 3) The financial expense rate was -0.9%, 1H22 was -2.5%; 4) the R&D expense rate increased 15.0ppt to 17.5% year on year; R&D expenses increased by 621.6% year on year to 55 million yuan. As of the end of 2Q23, the company: 1) accounts receivable and notes amounted to $561 million, a decrease of 36.7% from the end of 1Q23; 2) advance payments of $04 million, a decrease of 34.8% from the end of 1Q23; 3) inventory of $53 million, an increase of 124.8% over the end of 1Q23; 4) contract liabilities of $200,000, up 8.0% from the end of 1Q23. Net cash flow from 1H23 operating activities was 647 million yuan, and 1H22 was 45 million yuan, an increase of 1349% over the previous year.
Investment suggestions: The company is a national-level “specialized, special and new” small giant of high-end carbon fiber in China, with strong customer stickiness and certainty about downstream demand. The implementation of equity incentives in 2022 is conducive to improving the governance structure and accelerating the release of business vitality. The company accelerated the construction of the third phase project, transformed technological research and development advantages into production capacity advantages, and further enhanced its core competitiveness. We expect the company's net profit to be 695 million yuan, 863 million yuan, and 1,012 million yuan respectively from 2023 to 2025. The current stock price corresponding to PE from 2023 to 2025 is 25x/20x/17x, respectively. We maintain the “recommended” rating, taking into account the space created by the release of production capacity.
Risk warning: downstream demand falls short of expectations, production capacity release falls short of expectations, etc.