Description of the event

On October 30, Shandong Heda released its 2023 three-quarter report. The first three quarters of 2023 achieved operating income 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%. Looking at a single quarter, 23Q3 achieved revenue of 428 million yuan, up 14.05% from the previous month and 0.8% from the previous year. 23Q3 achieved net profit of 73 million yuan, a decrease of 13.66% from the previous month and a decrease of 9.81% from the previous year.

Gaoqing Phase I's production capacity was gradually increased. The company's third-quarter revenue continued to improve stock markets and stable overseas demand to help the company's performance, and Gaoqing Phase I's production capacity was gradually increased. The company achieved revenue of 428 million yuan in the Q3 quarter of 2023, up 14.05% from the previous year, up 0.80% year on year; net profit was 73 million yuan, down 13.66% month on month and 9.81% year on year. The market situation of the company's main business products, cellulose ether and vegetable capsules, is improving. On the one hand, the domestic real estate stock market stabilizes sales of building-grade cellulose ether. Under the stock market, the old housing renewal model has become mainstream. Since 2020, the central government has continued to promote the renovation of old urban neighborhoods, and many cities have responded and issued corresponding policies one after another. According to iFind, in Q3 '23, the number of new neighborhoods started and transformed into real old neighborhoods was 147,700, an increase of 2.38% over the previous year. The company's building-grade cellulose products are widely used in ready-mixed mortar, PVC, latex paint, putty and other building materials products, which are expected to concentrate benefits. Furthermore, under the Ministry of Housing and Construction, which clearly prohibits cement mortar from attaching to wall tiles, tile glue is expected to replace cement mortar. Cellulose ether, as an essential additive for tile adhesive, is expected to become an important growth factor for the company; on the other hand, demand in overseas infrastructure and construction industries is relatively stable, and the company's cellulose ether exports have improved. The company's original production capacity continues to be at full capacity, and Gaoqing's first phase production capacity is gradually being released. In terms of net profit, the company's Gaoqing Phase I project showed a turnover of 661 million yuan in the interim report, and the pressure to depreciate and amortize fixed assets is high.

In terms of expenses, the company's Q3 financial expenses were 12 million yuan, an increase of 26 million yuan over the previous year and an increase of 225 million yuan over the previous year, mainly due to a decrease in exchange earnings and an increase in interest on convertible bonds.

Cellulose ether production continues to expand. The acquisition of Zhongfu Expands Cellulose Product Matrix Company is a leading cellulose ether company in Asia, and continues to improve its product portfolio. The company's cellulose ether production capacity is currently 6.4 tons/year, covering nearly 100 products such as HPMC/HEMC. The company acquired Shandong Zhongfu Zhiwei in two stages. Zhongfu Zhiwei is committed to the R&D, production and sales of HEC. Currently, its HEC production capacity is 10,000 tons/year. Hydroxyethyl cellulose (HEC) can be widely used in coatings, household chemicals, oil drilling, PVC, ceramics, etc., and has huge market potential and broad development prospects. As of September 30, 2023, Zhongfu Zhiwei has been included in the scope of the merger of listed companies. The acquisition of Zhongfuzhiwei is beneficial to improve the company's cellulose ether product line and enhance the supporting capacity of cellulose ether series products.

The vegetable meat market in Ha Yan starts the second growth curve

Yanchan expands the plant-based meat market, which is expected to open up a growth curve. The plant-based meat products production base project of Metega (Zibo) Food Technology Co., Ltd., a wholly-owned subsidiary of the company's shareholding subsidiary Mitga (Shanghai) Food Technology Co., Ltd., has an annual production capacity of 100,000 tons. Currently, the project is in the equipment installation stage. After completion, the company plans to become the largest plant-based meat production base in the country. The company's food-grade cellulose ether can be used to ensure that plant meat maintains a soft texture before cooking, helps plant meat to form, and has a stable texture after heating. The company's cellulose ether forms an industrial chain collaboration with the plant-based meat business. In the process of manufacturing plant-based meat, it can improve its taste and texture and maintain moisture. Currently, the company's products have obtained multi-system certification and obtained supply certification from customers in many countries. There is huge market space for plant-based meat, which is expected to drive an increase in demand for food-grade cellulose ether. The company is positioned ahead of schedule, and is expected to concentrate benefits in the future, starting a second growth curve.

Investment advice

The company's net profit from 2023-2025 is estimated to be 314 million yuan, 4.15 million yuan, and 571 million yuan respectively (previous value:

3.81, 4.77, 668 million yuan), with year-on-year growth rates of -11.2%, 32.2%, and 37.6%. The corresponding PE was 20, 15, and 11 times, respectively, maintaining the “buy” rating.

Risk warning

(1) The project commissioning progress fell short of expectations;

(2) Prices of raw materials fluctuate greatly;

(3) the risk of related policy changes;

(4) International trade risks.