Event: recently, Qingcheng shares released the third quarterly report of 2023. In the first three quarters of 2023, the company achieved operating income of 1.323 billion yuan, a decrease of 0.56% compared with the same period last year, and a net profit of 305 million yuan, down 1.97% from the same period last year. In the third quarter of 2023, the operating income was 473 million yuan, an increase of 6.49% over the same period last year and 8.71% from the previous year; and the net profit returned to the mother was 113 million yuan, an increase of 2.69% over the same period last year and 5.18% from the previous year.

Comments:

The increase in sales supports revenue growth, and profitability is relatively stable. (1) on the sales side, 2023Q3 sales continue to hit record highs. The production capacity of the company's main product, silicon dioxide, has been released one after another, and the capacity load of the Thai subsidiary has increased steadily, directly contributing to the incremental production. 2023Q3 sold 80600 tons, up 23.59% year-on-year and 10.22% month-on-month, the largest quarterly sales in history. (2) in terms of unit price, the unit price of products decreases with the price of raw materials. According to the company announcement and our estimates, the unit price of the company's products and the price of comprehensive raw materials fell by 10.46% and 25.39% respectively in the second quarter compared with the same period last year, and by 1.81% and 15.45% respectively compared with the same period last year. We believe that the decline in the unit price of the company's products is mainly due to the price reduction of raw materials such as soda ash, quartz sand, sulfur and other products, and the company and some customers adopt a pricing model that follows the market. (3) in terms of net interest rate, the company's 2023Q3 net interest rate was 23.98%, which decreased by 0.88pct and 0.80pct respectively compared with the previous month, and remained basically stable. In addition, by October 9, 2023, the company's two sodium silicate raw material production lines have been overhauled, and the impact on the company's production and operation has basically ended. (4) on the whole, the improvement of the company's sales volume effectively supported the growth of revenue, which helped the company's 2023Q3 revenue to reach a quarterly high and its profitability more stable.

The permeability of new energy vehicles with high tire operating rate and superimposed new energy vehicles is improved, and the downstream demand is improving. (1) since 2023, China's tire operating rate, output and export volume have all been relatively high. China's logistics boom and heavy truck sales have rebounded month-on-month in September, and the demand downstream of tires has improved, driving the demand for silicon dioxide.

(2) New energy vehicles are expected to drive the demand for highly dispersed silica for a long time. Since 2023, the Chinese government and enterprises have adopted a variety of ways to promote the consumption of new energy vehicles, which is expected to promote the high-quality development of the new energy vehicle industry. From January to September 2023, China produced a total of 5.91 million new energy vehicles, an increase of 32.0% over the same period last year. As a special matching material for green tires, highly dispersed silica can effectively reduce rolling resistance and save energy. We think it is expected to fully benefit from the high prosperity of new energy vehicles.

The company actively layout new production capacity, new products, the future space can be expected. (1) in terms of production capacity: the company has three domestic production bases in Wuxi, Chuzhou and Sanming, and one overseas production base in Thailand, with a total production capacity of 330000 tons, 75000 tons under construction and 25000 tons under construction. the total production capacity ranks third in the world. The company intends to issue convertible bonds for the second phase of expansion of 25000 tons of silicon dioxide and comprehensive utilization of biomass (rice husk) resources in Thailand. We believe that the increase in production capacity will help the company to further expand its international market share, and the process of producing silica with rice husk ash instead of quartz sand can reduce environmental pollution, in line with the concept of green development, and meet the needs of downstream international customers. (2) products: as of the 2023 semi-annual report, some applications of the company's incubated silica microsphere project have obtained small batch commercial orders; other applications are in the process of client samples. The company expects some application products to be put on the market in the first half of 2024.

Profit forecast and investment rating: we expect the company's operating income from 2023 to 2025 to reach 2.051 billion yuan, 2.276 billion yuan and 2.594 billion yuan respectively, an increase of 17.4%, 11.0% and 14.0% respectively over the same period last year. The net profit belonging to the shareholders of the parent company reached 423 million yuan, 504 million yuan and 602 million yuan respectively, an increase of 11.1%, 19.2% and 19.6% respectively. From 2023 to 2025, the diluted EPS reached 1.01,1.21 and 1.44 yuan respectively, and the stock price corresponding to 2023PE on October 27 was 14.72x, maintaining the "buy" rating.

Risk factors: capacity construction is not as expected, downstream demand has dropped sharply, and raw material prices have risen sharply.