The company released the third quarterly report of 2023: according to the contents of the announcement, the income in the first three quarters was 1.323 billion yuan (YoY-0.6%), the net profit was 305 million yuan (YoY-2%), and the non-return net profit was 287 million yuan (YoY-3.2%). Among them, 23Q3 realized income of 473 million yuan (YoY+6.5%,QoQ+8.7%), net profit of 113 million yuan (YoY+2.7%,QoQ+4.6%) and non-return net profit of 110 million yuan (YoY+8.9%,QoQ+7.7%). The performance was in line with expectations.

With the improvement of the demand of the downstream tire industry, the company's silica sales have increased significantly, the product structure has been optimized and improved, and the gross profit margin has increased. According to the company's business announcement, the production and sales of silicon dioxide in the first three quarters were about 216000 tons (YoY+17.9%) and 219000 tons (YoY+15.9%) respectively. This is mainly due to the obvious recovery of demand in the downstream tire industry since the beginning of this year after overseas destocking and the impact of the domestic epidemic. The overall demand for upstream silica and other raw materials, while the company's products cost-effective advantage. In the macro form of last year to accelerate the acquisition of new brand certification, in the downstream domestic and foreign tire enterprises among the share has increased. In terms of prices, due to the decline in the prices of upstream soda ash, sulfuric acid and other raw materials compared with the same period last year, the average price fell 9.7 per cent to 5961 yuan / ton with the raw materials year-on-year. Overall, silica product revenue in the first three quarters increased by 4.7 per cent to 1.304 billion yuan compared with the same period last year, and gross profit margin increased to 28.02 per cent year-on-year. On the expense side, the overall sales expense rate, management expense rate and R & D expense rate increased 0.44pct compared with the same period last year, while the financial expenses increased due to the decrease in exchange earnings, which is estimated to be close to 50 million yuan. As a result, net profit margins fell 0.33pct to 23.07 per cent month-on-month.

Q3 silica sales hit a new high again, and the scale effect and product structure improvement led to a substantial increase in gross profit margin compared with the previous month. According to the contents of the company's business announcement, the company's silica production and sales in the third quarter were about 80600 yuan (YoY+30%,QoQ+11%) and 80600 tons (YoY+24%,QoQ+10%) respectively, which was not weak in the off-season, mainly due to the strong demand of domestic customers and the gradual increase of new certification brands of overseas customers. In terms of price, the price of raw materials has gradually increased from Q3. The monthly price adjustment for domestic customers is usually relatively flexible, and the order cycle for foreign customers is relatively long, so they have not yet started to adjust prices in large quantities. As a result, the average price of Q3 products has decreased by 10.5% and 2% to 5779 yuan / ton respectively compared with the previous month. In terms of raw materials, in the third quarter, the purchasing prices of soda ash, quartz sand and sulfur decreased by 16.2% and 17.4%, 13.5% and 5.24%, 67.1% and 18.0%, respectively. The structure of superimposed products has been continuously optimized, the proportion of highly dispersed silica products has increased and the utilization rate of production capacity is close to full. The gross profit margin increased by 7.46pct and 8.48pct to 32.41% respectively compared with the previous month. On the expense side, the main variable comes from financial expenses. Both 22Q3 and 23Q2 have more exchange gains, which are estimated to be 3000-40 million yuan, while 23Q3 has no exchange gains, so the overall net profit margin has decreased by 0.88pct and 0.8pct to 23.98%, respectively.

According to the company's three quarterly reports, by the end of September 2023, the company had about 300 million yuan under construction, an increase of 7.99 million yuan over the beginning of the year, and fixed assets had increased by 94.81 million yuan to 708 million yuan over the beginning of the year. The company currently has a silicon dioxide production capacity of 330000 tons, and in terms of production and sales in the third quarter, the annual production rate has reached 320000 tons, proving that the operating rate has reached a relatively high level, with a production capacity of 75000 tons in Fujian and 25000 tons in the second phase of Thailand.

The process is constantly optimized to meet the concept of medium-and long-term global carbon emission reduction. It is proposed to issue convertible bonds in the subsidiary Anhui Axi to build a comprehensive utilization project of biomass (rice husk) resources, using biomass (rice husk) instead of natural gas as fuel and rice husk ash produced by rice husk combustion as silicon-based instead of quartz sand to produce highly dispersed silica, which can greatly reduce carbon dioxide emissions and meet customer ESG performance standards.

Profit forecast and investment rating: maintain the profit forecast, and it is estimated that the net profit from 2023 to 2025 will be about 4.6,5.0 and 600 million yuan, corresponding to about 14, 12 and 10 times of PE.

Risk tips: large fluctuations in raw materials affect profits; capacity expansion is lower than expected; downstream tire demand is lower than expected