Event: on August 30, the company released its mid-2023 report, with revenue of 3.21 billion yuan in the first half of 2023, down 18.6% from the same period last year, and net profit of 330 million yuan, down 28.6% from the same period last year. In addition, the company issued an announcement on August 24 on the establishment of a joint venture company to invest in the POE project.
H1 product price decline affects the overall profitability, Q2 profitability has been repaired. In the first half of 2023, the macroeconomic recovery was weak, the energy price was high, the terminal consumption was depressed, and the market demand recovered slowly. the price of the company's main products declined year on year, achieving operating income of 3.21 billion yuan, down 18.6% from the same period last year, and the price difference between products and raw materials narrowed. The gross profit margin has been reduced, resulting in the company's home net profit of 330 million yuan in the first half of the year, down 28.6% from the same period last year. In the second quarter, product prices stabilized and rebounded, and the company's profitability was repaired. Revenue in a single quarter reached 1.631 billion yuan, an increase of 3.5% over the previous quarter, improved business performance, and achieved a net profit of 179 million, an increase of 21.77% over the previous quarter.
Set up a joint venture to enter the POE track. In order to further implement the company's innovation-driven development strategy, deepen the investment layout of the new energy materials industry, and strengthen the company's competitive advantage in the field of new energy materials, the company and Wilson (China) Investment Co., Ltd. jointly invested in the establishment of a joint venture company Lianhong Huisheng (Jiangsu) New Materials Co., Ltd. Lianhong Xinke contributed 455 million yuan in currency, accounting for 65% of the registered capital of the joint venture company. Wilson CIC contributed 245 million yuan in currency, accounting for 35% of the registered capital of the joint venture company. It plans to build 300,000 tons / year POE (polyolefin elastomer) project, including 100,000 tons / year in the first phase and 200,000 tons / year in the second phase to produce POE photovoltaic film materials, toughening materials and other high-end olefin materials.
The prices of the main products have stabilized, and the expansion of new materials projects has progressed steadily. With the introduction of national macro policies, the steady growth of consumption and the recovery of downstream demand, the gross profit margin of the company's existing major products, such as EVA high-end materials, PP special materials, EOD specialties, and so on, has further rebounded. At the same time, the company has a number of units completed and put into production in the second half of the year, 90,000 tons / year VA plant will significantly reduce the cost of EVA products, 20,000 tons / year UHMWPE, 100,000 tons / year lactic acid and 40,000 tons / year PLA, 10,000 tons / year electronic grade high purity special gas and other devices will increase the company's high gross profit product category and enhance the company's overall profitability. The company's multi-line layout of new materials business, the rapid development of various projects to form a coupling effect, optimistic about the company's broad prospects for new materials business.
Investment advice: in the short term, as the EVA particle leader, the company has the growth advantage of resonance with the industry boom; in the long run, the company is optimistic about the wise layout of the new energy track for building an integrated new material platform in the future. Due to the adjustment of product prices, the company is expected to achieve earnings per share of 0.52,0.68 and 0.80 yuan respectively from 2023 to 2025, corresponding to 38,29 and 24 times PE respectively, maintaining a "buy" rating.
Risk hint: downstream demand is lower than expected, product price fluctuation risk, production expansion project schedule is not as expected.