Incident Overview
On October 27, the company released its report for the third quarter of 2023; in the first three quarters, the company achieved total operating income of 2,910 billion yuan, +3.83%, net profit of 278 million yuan, or -8.65%; of these, the third quarter's single-quarter revenue was 969 million yuan, +13.87%, +4.33% over the previous year, achieving net profit of 63 million yuan, +372.66% yoy and -20.17% month-on-month.
Analysis and judgment
The spandex industry continues to be under pressure, dragging down the company's performance. The domestic spandex market price remained low in the third quarter, and the industry's profit level was at a historically low level. According to Baichuan Yingfu statistics, as of the end of October this year, the average price of the domestic spandex (40D) market was 30,800 yuan/ton, lower than the annual average price, down about 14% from last year; at the same time, the prices of MDI and PTMEG, the main raw materials of upstream spandex, were strong, at 20300 and 20250 yuan/ton respectively. Lower market prices and strong upstream raw material prices have reduced spandex profit margins, and the industry is under pressure. Affected by this, the company's overall profitability declined. The company's gross margin for the first three quarters of 2023 was 28.44%, 25.17%, and 20.78%, respectively, and net interest rates were 15.86%, 9.72%, and 7.67%.
Aramid production capacity continues to increase, and demand in the high-end sector will further increase. The company issued an announcement on July 28 stating that it will invest in the construction of a production line with an annual output of 20,000 tons of high-performance interphase aramid and its derivatives, further increasing aramid production capacity and consolidating its leading position in the industry. According to the project announcement, Taihe Telecom, a holding subsidiary of the company, is the actual operator of aramid derivatives. We believe that the purpose of the company's investment in the construction of this project is to increase the demand and application of aramid products in the high-end sector, especially in the field of new energy; according to estimates, the construction period of the project is two years, and the average annual net profit after completion is about 594 million yuan. Furthermore, the company's aramid coating project is progressing well. Some customers have verified that they have entered stage C and received small batch orders.
There are many projects under construction, and incremental business is progressing steadily. By the end of the third quarter, the company's projects under construction totaled 2,337 billion yuan, an increase of about 637 million yuan compared to the beginning of the year; the company has many projects under construction, and incremental business is progressing steadily. In addition to aramid coated diaphragms, the fiber-like lithium battery pilot project was officially put into operation in April 2023; at the same time, the company's 40,000-ton fiber greening treatment technology was officially put into operation in Penglai, Shandong at the end of September. Green printing and dyeing is a new type of printing and dyeing technology that can reduce water consumption by nearly 70%, reduce energy consumption by about 50%, and the treated fabric has natural bacteriostatic properties. We believe that when projects such as the company's aramid coated diaphragms and green printing and dyeing are officially put into operation, the company's overall profit level will further increase.
Investment advice
As the company's spandex business continues to be under pressure, profit is significantly lower than expected, so we adjusted our previous profit forecast. The estimated revenue for 2023-2025 is 44.48/63.73/8.660 billion yuan, with year-on-year growth rates of 18.6%, 43.3%, 35.9%, and net profit of 3.95/701/1,076 billion yuan, respectively. The year-on-year growth rates are -9.5%, 77.7%, and 53.4%, respectively. EPS is 0.46/0.81/1.24 yuan/share, corresponding PE is 34x , 19x, 12x Maintain a “buy” rating.
Risk warning
Raw material prices fluctuate, market competition intensifies, international trade friction intensifies, and the progress of new projects falls short of expectations