Incident: The company released the 2023 semi-annual report. In the first half of 2023, the company achieved operating income of 1,030 million yuan, a year-on-year decrease of 20.05%; realized net profit of 242 million yuan, a year-on-year decrease of 28.12%; in the second quarter of 2023, the company achieved operating income of 525 million yuan, a year-on-year decrease of 16.35%, an increase of 3.96% over the previous year; and achieved net profit of 148 million yuan, an increase of 13.91% over the previous year, an increase of 222.81% over the previous year.
Demand for long-chain binary acids was weak, and half-year performance declined year-on-year. Based on disciplines such as synthetic biology, the company is mainly engaged in R&D, production and sales of novel bio-based materials. The company has a biological long-chain dimeric acid (DC10-DC18) production capacity of 115,000 tons/year, of which biological sebacic acid production capacity is 40,000 tons/year, bio-based glutaryldiamine production capacity is 50,000 tons/year, and bio-based polyamide production capacity is 100,000 tons/year. In the first half of the year, the company's performance declined year-on-year due to weak downstream demand for the company's main product, long-chain diacid, and an increase in one-time costs. The company's sales rate, management rate, financial rate, and R&D rate for the first half of 2023 were 1.82%, 8.82%, -16.37%, and 8.36%, respectively, compared to +0.18 pct, +3.73 pct, -2.96 pct, and +1.65 pct, respectively. The company's sebacic acid project was completed in the third quarter of last year and trial production began. It is expected that it will gradually be expanded this year, becoming a new growth point for the company's performance. At the same time, the company's projects such as 500,000 tons/year biobased pentanediamine, 900,000 tons/year biobased polyamide project, 30,000 tons/year long chain dimeric acid, and 20,000 tons/year long chain polyamide are also progressing steadily. Project reserves are sufficient, laying the foundation for subsequent product release.
The China Merchants Bureau took a stake and signed a cooperation agreement, and it is expected that bio-based polyamides will continue to be released. On June 25, 2023, the company passed a bill relating to the issuance of A-shares to specific targets in 2023. After this issuance is completed, China Merchants Group will indirectly hold more than 5% of the company's shares. At the same time, the two sides signed a “Business Cooperation Agreement”. In 2023-2025, the amount of bio-based polyamide resin to be purchased from the company will be no less than 10,000 tons, 80,000 tons, and 200,000 tons, respectively. The company's biobased materials are expected to be used in various industrial sectors under the China Merchants Administration. The two sides will separately utilize their technical and market advantages to form effective collaboration in the industrial chain. This cooperation is expected to accelerate the company's continuous release of bio-based polyamides and provide support for the marketing of the company's products.
Investment advice:
We expect the company's net profit to be 546/770/1,152 million yuan respectively in 2023-2025, EPS of 0.94/1.32/1.98 yuan, respectively, and corresponding PE of 59/42/28 times, respectively. Considering that the company is a leader in synthetic biology, its main product, long-chain dimeric acid, has obvious advantages, and sebacic acid is expected to gradually contribute to performance this year; after the China Merchants Administration takes a stake, bio-based polyamide materials are expected to continue to be released, have broad room for growth, and have been covered for the first time, and given a “buy” rating.
Risk warning: Prices of long-chain diacid products have fallen, and the amount of polyamide materials released has fallen short of expectations.