The company released three quarterly reports for 2023, and the results were in line with expectations. According to the contents of the company's announcement, the income in the first three quarters was 1.903 billion yuan (YoY-5.74%), the net profit was 204 million yuan (YoY-17.7%), and the non-return net profit was 195 million yuan (YoY-15.3%). Among them, 23Q3 achieved an income of 646 million yuan (YoY+3.6%,QoQ+8.6%), a net profit of 66.38 million yuan (YoY+18.7%,QoQ+11.4%), and a net profit of 62.14 million yuan (YoY+12.2%,QoQ+9.2%). The increase in profit in the third quarter was mainly due to the rebound in aliphatic amine prices and the confirmation of the profit of Lanke Lithium Salt Lake Lithium extraction Project.

Product prices fell in the first three quarters due to the decline in raw material prices, isopropylamine overhaul in the third quarter affected aliphatic amine sales, spices had previously been affected by Chiwalton. 1) Aliphatic amines: according to the content of the company's business announcement, the revenue in the first three quarters was about 910 million yuan (YoY-16%), of which production and sales were about 72000 tons (YoY-6%) and 74000 tons (YoY-5%) respectively, mainly due to the overhaul of isopropylamine in the third quarter for more than a month, affecting the production of aliphatic amines, the price fell by about 11% to 13,300 yuan / ton compared with the same period last year. 2) Organic solvents: according to the content of the company's business announcement, the company's revenue in the first three quarters is about 350 million yuan (YoY+11%) and sales volume is about 45000 tons (YoY+16%). The company currently has two preparation processes of acetone and propylene, which are better than their peers, so the overall selection of propylene production with relatively low cost this year has outstanding cost advantages, so sales and profits are significantly increased. 3) spices: according to the company's operating announcement, the revenue in the first three quarters was about 350 million yuan (YoY-14%), mainly due to the impact of overseas Chihuaton going to the warehouse in the first half of the year, resulting in short-term sales fluctuations. Sales in the first three quarters fell 12% to 10,000 tons compared with the same period last year. In the first three quarters, the company's gross profit margin rose 0.83pct to 24.61% compared with the same period last year. On the expense side, the overall sales expense rate, management expense rate, and R & D expense rate increased 1.1pct compared with the same period last year, mainly from management expenses, which increased due to the commissioning of the Ningxia project and the progress of projects such as lithium recovery. In addition, financial expenses increased due to the increase in interest expenses, making the net profit margin decline to 12.19% year-on-year.

Q3 affected by isopropylamine maintenance, the main industry income profit has declined, Lanke lithium industry project confirmed contribution increment. According to the company's operating announcement, the revenue of aliphatic amines in the third quarter was about 250 million yuan (YoY-25%,QoQ-13%), and the sales volume was about 20, 000 tons (YoY-24%,QoQ-19%). Due to overhaul and the rebound in raw material prices, the product price rose 6% to 12300 yuan / ton. With the advantages of dual processes, product cost and performance-to-price ratio, organic solvents increased sales by 43% compared with the same period last year and decreased slightly compared with the previous year. Sales of spices rebounded in the third quarter, up 13% from a month earlier to 3555 tons after Chivaton went to the warehouse in the first half. In addition, the company confirmed the lithium recovery project with Lanke Lithium Lithium precipitation Mother Liquor in the third quarter, and the company announced the project in February with a contract amount of about 95.55 million yuan (including tax), including pretreatment, extraction, stripping and environmental treatment. The project was officially launched in the third quarter, and we expect to confirm a net profit of nearly 20 million.

Q3 gross profit margin increased by 3.58pct to 26.25% month-on-month. On the expense side, the main part of the increase is that the management expenses have increased by about 0.92pct, which is estimated to be mainly due to the increase in management-related expenses such as personnel of the salt lake project, and the increase in financial expenses due to the decrease in exchange earnings, thus driving the net profit margin to increase to 12.06% month-on-month as a whole.

In the later period, the production capacity of spice rights and interests increased 10 times, and gradually contributed to the certainty of the growth of the main industry. According to the company's report, by the end of September 2023, the company's fixed assets were about 771 million yuan, and projects under construction were about 1.065 billion yuan, an increase of 164 million yuan and 67.16 million yuan respectively over the beginning of the year and the end of June, mainly from the Ningxia synthetic flavor project. At present, the first phase of Ningxia project is in the process of trial production and is expected to be full production in 2024.

In the follow-up, Xinrui spices added 18000 tons of spice production capacity, which is expected to be put into production in the middle of 24 years. It is estimated that in the next 3 years, the company's spice rights and interests production capacity will increase nearly 10 times. The company actively docks the battery recycling enterprises and the whole vehicle factory, and the hundreds of billions of battery recycling market is gradually opened. The company's previous announcement and Geely Yaoning carry out battery recycling project cooperation, the current phase of the project 10,000 tons of battery black material production line step by step planning, according to the company announcement, the first phase of the project construction and operation, will carry out the second phase of the project to add 40,000 tons / year of waste lithium battery recycling capacity, the third phase of the new 50, 000 tons / year waste lithium battery recycling, a total of 100000 tons of lithium battery recycling. Xinhua relies on its own advantages of extractant to bring high lithium recovery rate and low recovery cost. At present, it is gradually cooperating with vehicle factories and battery recycling enterprises. This project is the company's first battery resource recycling project, and will gradually enter the hundreds of billions of battery recycling market.

Profit forecast and investment rating: considering the overhaul of aliphatic amines and the slight delay in the production of some spices, the profit forecast is lowered. It is estimated that the company's net profit in 2023-2025 will be about 2.8,4.2 and 560 million yuan (the original forecast is about 3.2,4.6 and 590 million yuan), corresponding to about 20, 13 and 10 times of PE, and about 24 times the average PE of comparable companies such as Lanxiao Technology, Costco and Greenmei in 2023. There is still room for 20% growth, maintaining the "buy" rating.

Risk hint: spice capacity digestion is not as expected; battery recycling project progress is not as expected.