Company announcement: the company released its quarterly report in 2023, with operating income of 2.152 billion yuan (YoY + 5.42%), net profit of 451 million yuan (YoY + 24.01%) and non-return net profit of 427 million yuan (YoY + 31.7%) during the reporting period. Among them, 23Q3 realized operating income of 814 million yuan (YoY-20.25% QoQ + 14.01%), net profit of 201 million yuan (YoY-7.6% QoQ + 31.37%), and non-home net profit of 195 million yuan (YoY-8.83% QoQQ 35.42%). The performance is in line with expectations.

The marginal demand in the lower reaches of Q3 has improved, the company's production and sales have gradually expanded, and the cost pressure has been gradually alleviated. Due to the high inventory of enterprises downstream of 22Q4, it continued to be de-stocked in the first half of 2023, the disturbance at the inventory side gradually weakened in the third quarter, and the scale of production and marketing of the company gradually recovered, supporting the company's revenue volume to increase by 14.01% month-on-quarter. At the same time, the downstream of the company continues to open up high-quality customers, the proportion of high-end composite products continues to increase, the price of raw materials declined year-on-year, cost-side pressure improved, gross profit margin increased 7.04pct year-on-year, month-on-month increase 3.53pct to 37.47%, net profit rate increased 3.46pct, month-on-month increase 3.29pct to 24.75%. In terms of expenses, the RMB exchange rate was relatively stable in the third quarter, and the decrease in exchange gains dragged down the financial expenses by 16.0499 million yuan month-on-month.

The planned production capacity is released on schedule, the reverse globalization trend brings the opportunity of international supply chain reconstruction, and the long-term development logic of the company remains unchanged. By the end of the three quarters of 2023, the project under construction has reached 213 million yuan, an increase of 84 million yuan from the previous month, and the project is progressing smoothly. According to the company announcement, Xinxiang base will achieve 60,000 tons of technical renovation project acceptance in 2022, the current single agent production capacity exceeds 200000 tons, while 460000 tons of lubricating oil additive series products project has entered the environmental assessment and safety assessment stage, the future long-term total production capacity of more than 900,000 tons / year (including composite agents and intermediates, etc.); Jinzhou base, 60,000 tons / year capacity under construction, mainly aimed at low-end market customers. The company seized the opportunity of supply chain reconstruction of large oil companies, made a rapid breakthrough in the overseas market, and gradually developed into the fifth comprehensive lubricating oil additive manufacturer in the world except the "big four" enterprises, with significant development space in the future.

Profit forecast and valuation: maintain the company's profit forecast from 2023 to 2024, and is expected to achieve a net profit of 6.94 yuan and 1.018 billion yuan. Due to the weakening of disturbance factors on the overseas supply side, the company's product volume in the future will face certain competitive pressure, so we lower the company's profit forecast for 2025 and expect to achieve a net profit of 1.265 billion yuan (1.575 billion yuan before the adjustment), corresponding to PE valuations of 16x, 11x and 9x respectively. According to wind, the company's current PB valuation is 3.976X, and the historical average PB valuation center for the three years since October 23, 2020 is located at 5.724X, with a sufficient margin of safety and maintaining an "overweight" rating.

Risk hint: the downstream demand is not up to expectation; the progress of the new project is not as expected; there are new entrants in the industry, and the competition situation is deteriorating; the company received a "attention letter from Shenzhen Stock Exchange" on April 10, 2023 and announced "reply to the attention letter from Shenzhen Stock Exchange" on April 13, with special attention.