Company announcement: according to the company announcement, the income in the first three quarters of 2023 is 2.63 billion yuan (YoY-2.6%), the net profit is 259 million yuan (YoY-40.9%), and the non-return net profit is 251 million yuan (YoY-42.3%). The performance is low. Among them, 23Q3 achieved an income of 963 million yuan (YoY+10.05%,QoQ+12.8%), a net profit of 49.93 million yuan (YoY-66.5%,QoQ-58.7%), and a net profit of about 49.71 million yuan (YoY-66.5%,QoQ-57%). The decline in performance compared with the previous month was mainly due to the decline in product prices and the increase in raw material costs.

The price of raw materials fell in the first half of the year, followed by a decline in product prices, resulting in a decline in overall profitability. Anti-coke agent due to the second half of 2022 raw materials downward, the price has not been reduced, since 2023 due to the continuous decline of raw materials, so the price has declined, according to the company announcement, the company currently has a production capacity of 18000 tons, basically full production. The accelerator still fluctuates near the break-even, and Q3 has a loss. According to Wind data, the price of aniline, the main raw material in the upstream, fell 5% year on year in the first three quarters, and the average price of accelerant NS was about 23200 yuan / ton, down nearly 7% from the same period last year, making the accelerator gross margin also downward. Overall, gross profit margin fell 4.45pct to 23.33% year-on-year. On the expense side, the rate of sales expenses, management expenses and R & D expenses increased slightly compared with the same period last year, while the financial expenses increased year-on-year due to the increase in convertible bond charges and the decrease in exchange earnings. Net profit margin fell 6.39pct to 9.87 per cent year-on-year.

The demand for Q3 products is strong, the sales volume is good, the price of raw materials rebounds, but the price increase of some products lags behind, and the profitability is damaged. Downstream tires maintained strong demand in the third quarter, so the demand for rubber auxiliaries increased, the company's product sales are good, but the price is still under pressure. The price of the anti-coke agent and the gross profit margin have been adjusted back from the high point, affecting the overall profit; the raw materials of the accelerator began to rise in August, but some overseas customers lagged behind due to quarterly orders, so the accelerator Q3 lost money; the prices of the insoluble sulfur intermittent method and the continuous method were gradually close to each other, and the profit ratio also declined. As a result, Q3 gross profit margin fell 8.58pct to 18.4% month-on-month. On the expense side, the exchange gain among the financial expenses decreased by nearly 20 million yuan from the previous month, while the convertible bond expenses were gradually deducted. In addition, the credit impairment loss caused by the provision for bad debts was about 13 million yuan. Overall, net profit margin fell 8.97pct to 5.19% month-on-month.

Increased production capacity of existing products and products under development drive future growth. According to the company's three-quarter report, by the end of September 2023, the company's projects under construction increased by 245 million yuan and 73 million yuan to 372 million yuan respectively compared with the beginning of the year and the end of June. It is estimated that the main projects include an annual output of 90, 000 tons of rubber auxiliaries, 10, 000 tons / year of rubber anti-coke agent CTP production equipment, etc., it is expected that the late anti-coke agent will increase by about 3000 tons to more than 20, 000 tons, and the adhesive system auxiliary amino resin will increase by about 40, 000 tons. The company will continue to strengthen the transformation of new auxiliaries from small-scale testing to industrialization, in order to meet the requirements of downstream tire industry for performance improvement and formula optimization, and plans to produce 65000 tons of high-performance rubber auxiliaries and by-product recycling projects per year, including 55000 tons of silane coupling agents and 10,000 tons of by-products propyltrichlorosilane and silicon tetrachloride, which are expected to be gradually put into production in 2024. In addition, organic peroxides and other auxiliaries are scheduled to build a pilot production demonstration line at the end of 2024. In addition, the company conducts laboratory research on lithium electricity new energy-related additives, and is expected to complete pilot trials of vinyl carbonate and fluoroethylene carbonate in 2023, as well as layout of the antioxidant lipoic acid in the large health field, and gradually release production capacity in 2023. We believe that in the case of the gradual weakening of the cyclical fluctuation of the profits of traditional auxiliaries, we need to pay more attention to the transformation of the company's achievements in new products, which will achieve multi-point flowering in the future.

Profit forecast and valuation: considering that the price profits of major profitable products have gradually fallen back to the normal level from previous highs, the profit forecast for 2023-2025 is revised downwards, and the three-year net profit is expected to be about 3.7,4.4 and 490 million yuan respectively (the original forecast is 5.2,5.9 and 650 million yuan), corresponding to about 9, 8 and 7 times of PE. Refer to the upstream tire enterprise Haili de, True Cheng shares 23-year average PE of about 14 times (Wind consensus expected), maintain the "buy" rating.

Risk tips: production of projects under construction falls short of expectations; sales of new products fall short of expectations; large fluctuations in raw materials affect profitability