Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved operating income of 932 million yuan, a year-on-year decrease of 21.6%, and realized net profit of 98 million yuan, a year-on-year decrease of 53.1%. In the third quarter of 2023, the company achieved operating income of 316 million yuan, a year-on-year increase of 8.3%, a year-on-year decrease of 7.6%; realized net profit of 40 million yuan, a year-on-year decrease of 17.2%, a decrease of 10.1% over the previous year; and realized net profit of 35 million yuan, a year-on-year decrease of 21.2%, a decrease of 14.4% over the previous year.

In 23Q3, the company's performance declined month-on-month, and gross margin increased month-on-month. The company's performance declined significantly year-on-year in the first three quarters of the year 23, mainly due to the slow recovery in market demand since 23, the continued lukewarm market conditions, and the decline in revenue and product gross margin. In 23Q3, the company's performance still declined month-on-month, and revenue in the pharmaceutical sector declined, mainly due to sales of major products falling short of expectations; however, with the gradual recovery of the downstream panel industry and the impact of inventory replenishment by end customers, the overall revenue of the LCD sector rebounded; in the OLED sector, due to the average sales of large-size televisions in the terminal consumer electronics market, revenue from other materials in the OLED sector increased, with the exception of deuterium-generation materials. In the first three quarters of 23 years, the company's gross sales margin was 34.3%, a year-on-year decrease of 3.8 pct. 23Q3 sales margin was 37.6%, up 4.7 pct from month to month. In terms of cost rates, in 23Q3, the company's sales, management, and financial expenses were 2.3%, 13.3%, and -1.8%, respectively, up 0.9, 1.2, and 1.6 pct from month to month.

Expand the electronic chemicals business and cultivate new profit growth points. The company has successfully developed products such as semiconductor photoresist monomers, TFT flat layer photoresists, film material intermediates, and polyimide monomers, and some products have achieved large-scale sales. In terms of semiconductor photoresist monomers, the company currently has about 20 kinds of monomer materials, mainly supplying foreign customers. Domestic customers are still mainly in the technical cooperation and joint research and development stage, and the supply volume is low. One of the pilot products of a high-end photoresist monomer has passed verification and achieved sales at the 100 kg level. The other monomers are still in the stage of verification and index improvement. In terms of photoresists for panels, the verification is relatively smooth, and it is still necessary to obtain a license to produce hazardous chemicals. In terms of polyimide monomers, the company is stepping up the environmental management registration of a new chemical substance for a product. The cycle is long. In terms of capacity development, the photoresist project for Dali Haitai's photoresist and high-end new materials industrialization projects is progressing normally. The company is applying for hazardous chemical qualifications and is expected to be put into trial operation by the end of '24.

The pharmaceutical sector business continues to advance, and the GMP workshop certification process is expected to be completed in the third quarter of '24. The GMP workshop certification process was completed approximately in the third quarter of '24. The pharmaceutical sector will still be dominated by revenue from pharmaceutical intermediates in '24. With the gradual release of new process drugs in the PA0045 terminal, the growth of PA6764 is expected to increase some revenue. The PA5437 terminal drug was approved for marketing in Europe in 2022. Due to the restructuring of the European sales partner, the rights of this drug were relinquished. Currently, end customers are connecting with new partners and updating EMA data at the same time.

Profit forecast, valuation and rating: Considering that downstream demand is still gradually recovering, we lowered the company's profit forecast for 23-25. The company's net profit for 23-25 is estimated to be 1.52 (down 40.4%) /2.57 (down 16.8%) /3.26 (down 14.2%) yuan, respectively. We are optimistic about the company's leading position in the field of OLED materials and the growth space in the pharmaceutical field, and maintain the “buy” rating.

Risk warning: Downstream demand falls short of expectations, prices of pharmaceutical intermediates fluctuate, and project construction progress falls short of expectations.