Overview of the incident: On October 29, the company released its 2023 three-quarter report. The first three quarters achieved operating income of 7.490 billion yuan, an increase of 21.00% over the previous year; net profit of 658 million yuan, an increase of 9.13% over the previous year; net profit after deducting 574 million yuan, an increase of 4.42% over the previous year. In the third quarter, the company achieved operating income of 3,022 billion yuan, an increase of 37.78% over the previous year, net profit of 164 million yuan, an increase of 3.40% over the previous year; net profit after deducting non-return mother's net profit of 143 million yuan, an increase of 6.41% over the previous year.
Affected by project preparation, cash flow was under pressure in the short term: as Jiangxi Xinke and Jinchang High Energy started production and operation, the company's operating income in the third quarter increased by 37.78% year on year, and the growth rate of net profit was lower than operating income. It may be affected by factors such as intense market competition and price increases for upstream raw materials; net cash flow from operating activities was -1,198 billion yuan, down 283.02% year on year; inventory reached 4.492 billion yuan, up 70.29% year on year, mainly because the company used a large amount of raw material reserves to ensure normal production and operation in Jiangxi Xinke and Jinchang Hi-Energy, which used a lot of capital. The cash flow situation is expected to ease with the completion of the entire Xinke line in Jiangxi and gradually entering the stage of steady state operation.
Acquire Zhongxin Hongwei and lay out the field of recycled plastic utilization: On October 29, the company announced that it plans to invest 140 million yuan to acquire 51% of Zhongxin Hongwei's shares, with the aim of horizontally expanding comprehensive resource utilization and recycling business in recycled plastic segments such as PA and PET. From January to May 2023, Zhongxin Hongwei achieved operating income of 124 million yuan and net profit of 7.3951 million yuan. Regarding performance commitments, the target company's performance targets for 2023, 2024, 2025, and 2026 are 208.3 × N (N is the remaining months of 2023), 25 million yuan, 35 million yuan, and 45 million yuan, respectively.
Investment suggestions: Affected by project preparation, cash flow is under pressure. Once the project enters steady operation, it is expected to ease; lay out the recycled plastic utilization field horizontally to explore new performance growth. Adjusting the company's profit forecast, the 23/24/25 EPS is expected to be 0.59/0.76/0.94 yuan/share (previous value: 0.74/0.94/1.12 yuan/share), corresponding to the closing price of October 27, 13.3/10.4/8.4 times, respectively. Considering the company's release of additional production capacity, the company maintained 16.0 times PE in 23 years and a target price of 9.44 yuan/share, maintaining a “careful recommendation” rating.
Risk warning: industry policy risks; industry competition intensifies; price fluctuations of raw materials and products.