Incident: On August 28, the company announced its semi-annual report for 2023. Revenue, net profit due to mother, and net profit after non-return income during the reporting period were 7.19, 0.51, and 49 million, respectively, -9.37%, -7.79%, and +9.68%, respectively. Among them, Q2 revenue, net profit attributable to mother, and net profit not attributable to mother were 401, 0.28, and 27 million, respectively, -0.23%, -16.35%, +0.63%, +26.1%, +16.67%, +22.3%, respectively.
The TPU boom is under downward price pressure, and incremental+differentiation has reduced non-positive growth. The company was affected by the high base of non-recurring revenue from government grants and investment income in 2022H1. 2023H1 net profit was -9.37% year-on-year, but after excluding this factor, net profit without attribution achieved a steady increase of +9.68% over the same period. On the revenue side, the company's TPU business achieved revenue of 690 million yuan in the first half of the year, -11.7% year-on-year. Mainly due to the slump in the TPU market in the first half of the year, prices dropped sharply. According to Wind data, the prices of TPU film/phone case/shoe material in H1 in 2023 were 1.8/1.6/16,000 yuan/ton, respectively, compared to -31.1%/-28.7%/-27.3%. Among them, the decline in total revenue was less than the decline in product market prices. We believe that the company gave full play to the advantages of differentiated technological innovation and had strong product competitiveness, so sales volume was still growing against the trend despite poor demand. On the cost side, the company's TPU business cost in the first half of the year was 580 million yuan, -14.3% year-on-year. According to Wind data, 2023H1 raw material end polymerization MDI/pure MDI prices were 16/19,000 yuan/ton, respectively, -18.9%/-14.6%, and BDO/HDI/polyester polyol (AA/BG/EG) prices were 1.2/4.6/14,000 yuan/ton, respectively, -53.9%/-39.1%/-32.9%. Raw material prices have all declined, driving operating costs down. In terms of price difference, according to Wind data, the TPU price difference for H1 in 2023 was 2181.4 yuan/ton, +7.6% year-on-year, a slight increase overall. The gross margin and net profit margin of 2023H1 were 16.3% and 7.1%, respectively, compared with the previous year, +2.7 pct and +0.1 pct, respectively. 2023Q2 gross margin and net margin were 14.9% and 6.9%, respectively, +0.1 pct and -1.4 pct, year on year, and -3.3 pct and -0.6 pct month on month. Profitability increased slightly over the same period.
The product structure continues to be optimized, and capacity expansion boosts growth. As of mid-2023, the company's progress in constructing the “8000 ton expandable thermoplastic polyurethane elastomer project” has reached 90%, and construction is expected to be completed on September 30, 2023. Project completion will drive further optimization of the company's product structure and further increase the proportion of high-end TPUs. At the same time, the company continues to expand its scale advantage. Construction of the “Integrated Elastomer Project with an Annual Output of 200,000 Tons”, located in the Dajijia factory area in Yantai, Shandong, began construction in early 2022. As of September 12, the construction of the plant had basically been completed, equipment installation and commissioning had been completed, and some production capacity was about to be put into operation. It is expected that Q4 will contribute some of the sales volume. After the overall project is completed, the company's TPU production capacity will be further increased, and the scale advantage is expected to be further strengthened.
The HDI project continues to advance, and the integration process is speeding up. According to Wind, the HDI price of H1 in 2023 is 46,000 yuan/ton, which is higher than MDI and TDI, which are also isocyanates, and has strong profitability. In March 2022, the subsidiary Meirui Technology plans to invest 1.5 billion yuan to build the first phase of the polyurethane new materials industrial park project (120,000 tons of special isocyanate integration and supporting public auxiliary projects). Construction of the project began in Q4 2022. As of June 30, 2023, the project has completed the construction of some units and roads, etc., and some equipment has been installed. It is expected to be completed and put into operation in 2024. At the same time, the second phase continues to plan 200,000 tons of special isocyanate HDI production capacity. The company is expected to continue to open up room for growth by extending the industrial chain upward.
Investment suggestions: Due to the low TPU boom and price decline, the company's net profit forecast for 23-25 was adjusted to 1.5/4.3/640 million yuan (the original forecast value for 23-24 was 26/650 million yuan), corresponding to the current stock price PE of 44.7/15.5/10.5 times. As a leader in the high-end TPU industry in China, the company has excellent profitability. At the same time, the company actively lays out highly profitable specialty isocyanate HDI products, realizes the integration process, is optimistic about future growth space, and maintains a “buy” rating.
Risk warning: Risks such as raw material price fluctuations exceeding expectations; risk of downstream demand falling short of expectations; risk of capacity expansion falling short of expectations; downstream risk of new production capacity not being digested as expected; risk of technological change; risk of information not being updated in a timely manner.