Industry supply increased, the company's Spandex, Aramid profit significantly improved year-on-year, month-on-month decline slightly. In 2023Q3, the Company realized operating income of RMB 969 million yuan, year-on-year +13.9%, month-on-month +4.3%; net profit attributable to parent was RMB 63 million yuan, year-on-year +373%, month-on-month-20.35%. Considering that the domestic economic recovery is less than expected, the product demand is less than expected, the increase in overseas supply leads to the export of products less than expected, the crude oil price is still at a high level, and the company's spandex aramid cost is still at a high level, we lower the company's 2023-2024 net profit forecast to 3.78/6.62 million yuan.(The original forecast is 8.94/16.01 billion yuan), the new parent net profit forecast for 2025 is 1.462 billion yuan, and the corresponding EPS forecast for 2023-2025 is 0.44/0.77/1.69 yuan respectively. With reference to the valuation of comparable companies, considering that there was a large loss of polyurethane in 2023, we lowered the target price of the Company to RMB20 (the original target price was RMB40, the performance was less than expected and the short-term fluctuation of the Company's share price was large due to the new equity) based on the performance of 2024, and the average PE of comparable companies in 2024 was 25 times.

Spandex drag performance, three quarterly reports month-on-month decline. In 2023Q3, the Company realized operating income of RMB 969 million yuan, year-on-year +13.9%, month-on-month +4.3%; net profit attributable to parent was RMB 63 million yuan, year-on-year +373%, month-on-month-20.35%; net profit deducted from non-parent was RMB 45 million yuan, year-on-year +637%, month-on-month-34.4%. In Q3 of 2023, the gross profit rate and net profit rate of the company decreased by 4.4/2.1pcts to 20.8% and 7.7% respectively, and the profitability decreased month-on-month.

According to the company announcement, the company holds 66.23% of Minshida aramid paper 2023Q3 to achieve a net profit of 24 million yuan, year-on-year +30%, month-on-month +4.35%. In Q3 of 2023, the sales, management and financial expense ratios of the Company were stable and decreased compared with the previous month, and the inventory increased by 46% compared with the beginning of the year, with a slight increase compared with Q2. With reference to the price difference data of Baichuan Yingfu Spandex, we estimate that the net profit loss of Spandex business in Q3 of 2023 is about RMB 0.5- 60 million yuan, and the contribution of aramid performance of the Company is estimated to be about RMB 120 million yuan.

Aramid short-term structural pressure, the company advantage is still relatively significant. Since 2023, overseas para-aramid production capacity has gradually returned to normal, squeezing domestic aramid export orders, and the company's para-aramid business is under short-term pressure. In terms of meta-aramid, due to structural differences in downstream sales, especially the increase in sales volume in the high-temperature filtration field, the profitability decreased slightly, while the order lag in the demand for protective clothing led to a narrowing of meta-profit. We expect that with the gradual recovery of downstream orders in the fourth quarter, the overall aramid profit margin is expected to increase month-on-month. In the long run, Aramid still has a cost advantage. According to the announcement of each company, the investment amount of aramid single ton of the company is 108,000 yuan/ton, far lower than Sinochem International (250,000 yuan/ton) and Yizheng Chemical Fiber (260,000 yuan/ton). According to our calculations, the company's production cost advantage over its peers is about 15,000 yuan/ton, which has good competitiveness.

Spandex industry expansion increased, profitability continued to decline month-on-month. According to the data of Baichuan Yingfu, the price of polyurethane 40D in 2023Q1-Q3 is 34841/31584/30742 yuan/ton respectively, which continues to decrease compared with the previous month. The average production cost of the industry is 34853/34147/35123 yuan/ton respectively. The cost is still at a high level, and the gross profit per ton is-12/-2563/-4381 yuan respectively. According to the data of Baichuan Yingfu, the total demand of the industry in 2023 is 850,000 tons, and the total production capacity of the industry is 1.33 million tons, among which 190,000 tons will be added in 2023. The increase of supply and demand will lead to the expansion of polyurethane loss range.

Diaphragm coating, green printing and dyeing business smoothly, optimistic about long-term growth space. The company layout lithium battery membrane aramid coating business, assuming 2025 aramid coating penetration rate of 13%/20% 30%, we estimate that the company is expected to achieve 16/82/12.5 billion flat aramid coating membrane shipments, will drive the company aramid demand increment of 0.3/1.1/2.5 million tons, according to the conservative forecast of 0.4 yuan/flat net profit, respectively is expected to achieve 6.4/32.8/5 billion yuan profit contribution. According to the company announcement, lithium battery membrane aramid coating products are being verified by customers, and the new production capacity is steadily recommended. At the same time, the company's 40,000 tons fiber green treatment technology industrialization project was officially put into operation in Penglai, Shandong Province at the end of September. Compared with traditional printing and dyeing, green printing and dyeing technology can save energy by about 50%, save water by about 70%, reduce carbon dioxide emissions by about 35%, and greatly shorten the printing and dyeing time. Bring ESG and efficiency improvement to the terminal brand. The lithium battery membrane aramid coating and green printing project is expected to help the company grow again.

Risk factors: raw material prices fluctuate significantly; domestic economic recovery is less than expected; overseas demand is less than expected; Deterioration of industry structure; progress of new projects of the Company is less than expected.

Earnings forecast, valuation and rating: considering that the domestic economic recovery is less than expected, product demand is less than expected; overseas supply increases lead to product exports less than expected; The crude oil price is still at a high level, and the company's spandex aramid cost is still at a high level. We reduce the company's parent net profit forecast for 2023-2024 to 3.78/6.62 million yuan (the original forecast is 8.94/16.01 billion yuan), and the new parent net profit forecast for 2025 is 1.462 billion yuan, corresponding to EPS forecast of 0.44/0.77/1.69 yuan for 2023-2025 respectively. Considering that the company is currently the only listed company that produces aramid on a large scale, we select Tongyi, Zhongfu Shenying, Jilin Chemical Fiber and Zhongjian Technology, listed companies of super fiber, as comparable companies. Considering that there is a large loss of spandex in 2023, we take 2024 performance as the benchmark. The average PE of comparable companies in 2024 is 25 times. According to 25 times PE in 2024, the target price of the company is lowered to 20 yuan.(The original target price was 40 yuan, the performance was less than expected and the new share capital caused the short-term fluctuation of the company's share price), maintaining the "Buy" rating.