Event: on October 18, 2023, UNOCI Technology released its third quarterly report in 2023. The company's operating income in the first three quarters was 1.423 billion yuan, up 8.99% from the same period last year. Its net profit was 114 million yuan, up 56.91% from the same period last year. Non-net profit was 113 million yuan, up 72.58% from the same period last year. The 3Q23 operating income of the corresponding company was 486 million yuan, up 2.44% from the previous month; the net profit returned to the mother was 54 million yuan, up 28.60% from the previous month.

The performance of 3Q23 is better than the previous month. In the first three quarters of the company, the sales expense rate was 0.65%, up 0.02pcts from the same period last year; the management expense rate was 1.75%, down 0.22pcts from the same period last year; the financial expense rate was-0.74%, up 0.07pcts from the same period last year; and the R & D expense rate was 3.49%, down 0.25pcts from the same period last year. In terms of gross profit margin, 2Q23's overall gross profit margin is 14.42%. The overall gross profit margin of 3Q23 is 18.74%, which is up 4.32pcts from the previous month. We think that the price of carbon black, the company's main product, has hit bottom and rebounded, resulting in better 3Q23 performance than the previous month.

The net cash flow of the company changed greatly in the first three quarters. The net cash flow generated by operating activities was 72 million yuan, up 1160.07% from the same period last year, due to the increase in discounted income from bills; the net cash flow from investment activities was-74 million yuan, up 61.75% from the same period last year, due to the reduction of financial investment; the net cash flow generated by fund-raising activities was 243 million yuan, up 441.20% from the same period last year. The balance of cash and cash equivalents at the end of the period was 634 million yuan, an increase of 151.14% over the same period last year. Accounts receivable rose 12.19% over the same period last year, and the turnover rate of accounts receivable decreased from 4.40 times in the same period in 2022 to 4.01 times. Inventories fell 24.59% year-on-year, and inventory turnover increased to 8.50 times from 6.67 times in the same period in 2022.

The price of 3Q23 carbon black bottomed out and rebounded, while the price of silica remained relatively high. According to the data of the Business Society, the average price of carbon black from July to September is 10963 yuan / ton, and the YoY is-0.92%, 9.63%, 11.43% respectively. After the price of carbon black gradually bottomed out in 2Q23, it gradually rebounded in the third quarter, which in turn promoted the company's performance to be better than the previous quarter. According to the data of the Business Society, the average price of silica from July to September in 2023 is 6025, 6025 and 6083 yuan / ton respectively, and the product price remains relatively high, which plays a certain role in supporting the company's performance in the third quarter of 2023. As of 1H23, the company has a carbon black design capacity of 225,000 tons / year, silicon dioxide design capacity of 200,000 tons / year, is the only domestic company with both silicon dioxide and carbon black production capacity and relatively balanced production capacity, is currently the largest production scale and the most complete variety and specification of silicon dioxide production enterprises north of the Yangtze River. The company has actively implemented the product differentiation strategy, and the carbon black products have gradually expanded to high-end application fields such as special carbon black and conductive carbon black. Silicon dioxide products have gradually expanded to highly dispersed silica, silica for battery separators, silica for feed additives and other fields. The company has a large number of downstream customers, including Youke Homa, Zhengxin rubber, Cooper tires, racing wheel tires and other well-known tire enterprises, vitamin leading enterprises Xinhe Cheng and Wanma Polymer Group, a leading company in the field of wire and cable materials.

We are optimistic that the company will strive to implement the product differentiation strategy and promote the focus of carbon black, silicon dioxide and other product sectors to gradually shift to high value-added areas, which will lead to the improvement of the company's overall profitability.

Optimistic about the company's high-voltage cable shielding materials with nano-carbon material project. According to the company's report, two production lines have been built for the company's 100000 tons / year highly dispersed silica and 30,000 tons / year silicic acid projects, and the third production line is expected to reach the scheduled state of use by the end of December 2023. The R & D and testing center construction project is expected to reach the scheduled state of use in June 2024. The project of nanometer carbon material for shielding material of high voltage cable with an annual output of 100000 tons is a major implementation project in Shandong Province, which can break the foreign technical monopoly and realize the domestic production of high voltage conductive carbon black. With the construction of UHV transmission network during the 14th five-year Plan period, the future demand of conductive carbon black for HV EHV cable shielding material is also on the rise. We are optimistic about the company's continuous investment in carbon black for high-voltage cable shielding materials, and it is expected that the completion of the project will open up a new revenue growth curve for the company.

Investment suggestion: we estimate that the income of UNOCI Science and Technology in 2023-2025 will be 20.73max 24.99 / 2.961 billion, an increase of 12.96%, 20.55%, 18.52%, and the net profit of return to the mother is 1.65, 2.49 / 343 million, respectively, an increase of 48.00%, 51.03%, 37.85%, and a corresponding EPS of 0.90, 1.35, 1.87, respectively. Combined with the company's closing price on October 23, the corresponding PE is 18-12-9 times. We are optimistic about the company's product differentiation strategy and the domestic substitution trend of high-voltage conductive carbon black, and maintain the "buy" rating.

Risk tips: raw material price fluctuation risk, demand lower than expected risk, project construction risk, environmental protection policy risk