Event: the company released its three-quarter report for 2023, with operating income of 2.152 billion yuan during the reporting period, an increase of 5.42% over the same period last year, and a net profit of 451 million yuan, an increase of 24.01% over the same period last year, deducting 427 million yuan of non-net profit, an increase of 31.70% over the same period last year. Among them, the operating income in the third quarter was 814 million yuan, down 20.25 percent from the same period last year, up 14.01 percent from the previous quarter, and the net profit from the mother was 201 million yuan, down 7.60 percent from the same period last year, with an increase of 31.37 percent.

The profitability continued to improve in the third quarter compared with the previous quarter, and actively opened up the compound agent market. In the first three quarters of 2023, the company's comprehensive gross profit margin increased by 34.46%, an increase of 6.4 pct over the same period last year. Among them, the company's comprehensive gross profit margin in the third quarter was 37.47%, 7.04 pct higher than the same period last year, and 3.52 pct higher than the previous quarter. In the first three quarters of 2023, the company expense rate was 11.25%, an increase of 2.13 pct over the same period last year, of which the third quarter expense rate was 9.94%, an increase of 2.97 pct over the same period last year, and a month-on-month decrease of 0.13 pct. The company continues to obtain lower dose and more energy-saving bench test reports issued by third-party authoritative testing institutions, which takes a solid step to realize the strategic transformation from single agent to compound agent, from middle and low end to middle and high end. The company strengthens the promotion of compound agent products, increases the development and access work for core customers, speeds up the international authoritative certification of composite agent products and the internal evaluation and testing of customers, and makes breakthroughs in core customer admittance. Transformation and upgrading has been fruitful.

The global market space of lubricating oil additives is large, the industry barrier is high and the competition pattern is good. According to the statistics of Klein and Shanghai Lubricating Oil Industry Association, it is expected that the demand for lubricating oil additives in China will increase to 1.12 million tons in 2023, and the global demand will increase to 5.34 million tons, with a market size of about 18.5 billion US dollars. The company has broad space for development in the future. Lubricating oil additives have high technical barriers and market access barriers, a wide variety of subdivided products, and different compound formulations, which need to pass the API certification of the United States, with high technical indicators and high product quality requirements; large lubricating oil enterprises have strict evaluation of additive suppliers, will carry out long-term strict testing, have very stringent standards and customized requirements, and tend to long-term cooperation once they enter. The competition pattern of the global lubricating oil additive industry is good. The four major multinational corporations in Europe and the United States have a global market share of 85%. It is estimated that the company will have a global market share of 2% Murray 3% in 2022, and there is still much room for improvement in the future.

Compound agent transformation into the harvest period, continue to expand production to seize the global market share. The overall technical level of lubricating oil additives of the company is leading in China, and some technologies are leading internationally, and the transformation of composite agents has entered the harvest period. at present, China's lubricating oil additive industry is still dominated by foreign capital, and it is particularly important to realize domestic substitution. there is a lot of room for import substitution. The company speeds up the construction of reconstruction and expansion projects, relying on the advantages of complete infrastructure, complete supporting projects, short construction cycle and low investment in Xinxiang production base. Through technical renovation and expansion projects, the company has achieved a rapid increase in production capacity and expanded the scale of production and marketing. The existing single agent production capacity exceeds 200,000 tons / year, and the follow-up new projects are under construction. In the future, the production capacity will exceed 700,000 tons / year. Continue to seize the global market share, greatly enhance the future growth space of the company.

Maintain the "highly recommended" investment rating. Due to the lower-than-expected market demand in the third quarter, we expect the company's return net profit from 2023 to 2025 to be 671 million yuan, 875 million yuan and 1.116 billion yuan respectively, EPS 2.33,3.04,3.87 yuan respectively, and the current stock price corresponding to PE 16.3,12.5,9.8 times, optimistic about the company's future growth and maintain the "highly recommended" investment rating.

Risk tips: rising raw material costs, lower-than-expected downstream demand, and lower-than-expected production of new projects.