3Q23 performance is lower than we expected.

China Catalyst announced 1-3Q23 results: revenue was 364 million yuan, down 10.8% from the same period last year; net profit from home was 43 million yuan, corresponding to 0.25 yuan per share, down 49.9% from the same period last year, which was lower than we expected, mainly due to the decline in the number of orders for BASF denitrification molecular sieve compared with the same period last year and the company's confirmation of share payment fees. 1-3Q23 achieves deduction of non-net profit of 38 million yuan.

3Q23 achieved revenue of 127 million yuan, an increase of 59.1% and 11.9% compared with the same month-on-month ratio; a net profit of 4 million yuan per share, corresponding to 0.02 yuan per share, a decrease of 62.5%-89.1% compared with the same / month-on-month ratio; and gross profit margin decreased by 4.4/21.8ppt to 31.5% compared with the same period.

Trend of development

The sales volume of mobile source denitrification molecular sieve is under pressure. 1H23 is affected by the weakness of overseas economy, and the order volume of BASF denitrification molecular sieve is under pressure. 3Q domestic heavy truck mainframe factory is in the off-season. Looking back, we think that with the recovery of domestic logistics, infrastructure and other industries, heavy truck demand is expected to recover. At the same time, 4Q is the traditional peak season for heavy trucks. The sales area of superimposed catalyst products has been expanded from the Asia-Pacific region to the global range, and has now achieved sales to Germany, Poland, the United States and South Africa. We believe that the company's mobile source denitrification molecular sieve sales are expected to pick up.

Continue to develop product application areas or develop new products to promote long-term growth. The company's HPPO propylene oxide catalyst and process 1H23 has been successfully started by downstream customers. In the long run, on the one hand, the company will increase its R & D investment in new products, including fixed source denitrification molecular sieves, TRH special molecular sieves, VOCs purification catalysts, ethylene glycol synthesis catalysts and other environmentally friendly new material molecular sieves and catalyst products, iron-molybdenum catalysts, nickel-copper catalysts, maleic anhydride catalysts and other metal catalyst products, m-cresol, high-purity alumina, high-purity silica and other fine chemicals On the other hand, actively promote the application expansion of existing molecular sieves in MTO and other fields, in order to seek future performance growth points. We believe that with the gradual completion of the pilot test of the company's new products, customer verification, demonstration plant start-up and other links, it is expected to drive the medium-and long-term growth of the company.

Profit forecast and valuation

Due to the lower-than-expected order volume of BASF mobile source denitrification molecular sieve, the main customer downstream of the company, we lowered our 24-year profit forecast of 31% to 130 million yuan. At present, the company's share price corresponds to the 2023 / 24 price-to-earnings ratio of 32.7ax 25.0x. Due to the downward adjustment of the profit forecast but considering the long-term growth of the company, we lowered the company's target price by 7% to 25 yuan, corresponding to the 24-year price-to-earnings ratio of 43x33x for 2023 University. the current stock price corresponds to 31% of the rising space and maintains the "outperform industry" rating.

Risk

The demand for heavy trucks is lower than expected, and the penetration of new energy commercial vehicles is increased due to the dependence of a single customer.