Event: The company released its three-quarter report for 2023. The first three quarters of 2023 achieved revenue of 1,178 billion yuan, a year-on-year decrease of 11.53%, and net profit of 230 million yuan, a year-on-year decrease of 24.95%; of these, the third quarter achieved revenue of 428 million yuan, a year-on-year increase of 0.8%, a year-on-year increase of 14.13%, and net profit of 72.62 million yuan, a year-on-year decrease of 9.81%.

The most stressful moment is over, and the company is about to enter the 2.0 stage of rapid development. The company achieved revenue of 428 million yuan in the third quarter, and its main business showed a year-on-year recovery. After entering the third quarter, the company's new cellulose ether plant began to gradually release production capacity, but at the same time, depreciation expenses also increased, so net profit in the third quarter was affected somewhat. In addition, financial expenses in the third quarter were high, mainly due to lower exchange earnings and increased interest on convertible bonds. Overall, gross profit for the third quarter was 126 million yuan, an increase of 10.18% over the previous month, which has already brought about significant improvements. It can be said that the company's various businesses are already recovering. In the future, the company will start lightly and enter the 2.0 stage of rapid development.

The acquisition of Zhongfu Zhiwei strengthens its leading position in cellulose ether. On August 28, 2023, in order to make up for the shortcomings of HEC products, the company invested in the acquisition of 47% of Shandong Zhongfuzhiwei's shares, and agreed to acquire the remaining 53% of the shares after the conditions are met. It is expected that after the conditions are met, the company will hold 100% of Shandong Zhongfu Zhi's shares. Shandong Zhongfuzhiwei is mainly engaged in the production and sale of hydroxyethyl cellulose, hydroxypropyl methylcellulose, pharmaceutical grade hydroxypropyl methylcellulose, etc. The products are widely used in household chemicals, latex coatings, polyvinyl chloride, ceramics and agricultural production.

The new production capacity was gradually put into operation, once again starting rapid development. The company has a total production capacity of 85,000 tons of cellulose ether, including the current production capacity of 34,000 tons, 41,000 tons under construction (some production capacity is in the climbing stage), and 10,000 tons for Zhongfu. It is a leading domestic cellulose ether enterprise. At the same time, the company is also developing new customers in new application fields. These new products are more expensive and more profitable. In the field of plant capsules, the company is an integrated global industry chain company for plant capsules. It is estimated that the company will have an annual production capacity of 35 billion capsules by the end of this year. With the removal of foreign capsules from inventory and returning to normalization, demand for vegetable capsules is expected to pick up, and the operating rate of production capacity will increase further. At the same time, the more expensive second-generation vegetable capsules have also been verified and will gradually be put on the market. In the field of plant-based meat, at the end of this year, Mitega's production capacity of 10,000 tons of plant-based meat will soon complete equipment commissioning and be put into production. Plant-based meat products use high-end cellulose ether produced by the company, and the taste of the products is closer to the taste of the Chinese population. With the advantage of raw materials, the company is expected to profit from the price difference in the industrial chain and be more competitive among similar products. In the future, with large-scale production of plant-based meat production capacity, the company is expected to benefit both from selling cellulose ether and from obtaining shareholding income.

Maintain a “Highly Recommended” investment rating. It is estimated that the company's revenue for 2023-2025 will be 1,617 million yuan, 2.134 billion yuan and 2,856 million yuan respectively, net profit will be 280 million yuan, 391 million yuan and 553 million yuan respectively, and EPS will be 0.82 yuan, 1.14 yuan and 1.62 yuan respectively. The current stock price corresponding to PE is 22.8 times, 16.3 times, and 11.5 times, respectively.

Risk warning: New project construction falls short of expectations, product volume falls short of expectations