Incident: The company released its three-quarter report for 2023. During the reporting period, it achieved operating income of 1,903 million yuan, a year-on-year decrease of 5.74%, a year-on-year decrease of 17.66%, after deducting non-net profit of 195 million yuan, a year-on-year decrease of 15.30%; of these, it achieved operating income of 646 million yuan in a single quarter, up 3.61% year-on-year, 8.57% month-on-month, and net profit of 66.38 million yuan, a year-on-year increase of 11.38%.
At the same time, the company issued an announcement on the subsidiary's foreign investment to implement waste electrode chips and battery resource recycling projects.
Overall product prices declined in the first three quarters, and profitability increased slightly. The company's main business is fatty amines, organic solvents, and synthetic fragrances. The main products isopropylamine, ethylamine and isopropyl alcohol have strong competitive advantages in China in terms of plant size, process technology, production cost and market share. In the first three quarters of 2023, the company achieved revenue of 910 million yuan, a year-on-year decrease of 15.9%, with sales volume of 74,000 tons, an average sales price of 12,300 yuan/ton, a year-on-year decrease of 11.36%; organic solvents achieved revenue of 350 million yuan, a year-on-year increase of 11.3%, a year-on-year increase of 15.9%, an average sales price of 7,800 yuan/ton, a year-on-year decrease of 4.02%; synthetic perfumery achieved revenue of 350 million yuan, a year-on-year decrease of 14.5%, sales volume of 10,000 tons, a year-on-year decrease of 11.36%; 12.2%, the average sales price was 34,500 yuan/ton, a year-on-year decrease of 2.52%.
In the first three quarters, the company's key raw material, acetone, rose 5.07% year on year, the average purchase price of propylene fell 14.4% year on year, and the gross sales margin was 24.6%, up 0.83 pct year on year.
Prices of some products rose sequentially in the third quarter, and performance gradually improved. In the third quarter of 2023, fatty amine revenue was 245 million yuan, down 13.5% from month on month, sales volume of 20,000 tons, down 18.7% month on month; average sales price was 12,000 yuan/ton, up 6.5% month on month; organic solvent revenue was 125 million yuan, up 5.4% month on month, sales volume was 1.6 million tons, down 0.9% month on month, average sales price was 7830 yuan/ton, up 6.3% month on month; fragrance and fragrance revenue was 118 million yuan, up 10.5% month on month, sales volume 0.36 million tons, up 13.3% month on month. Average sales price 33,200 yuan/ton, down 2.5% from the previous month. Looking at the core product market, the average market prices for 2023Q3 isopropylamine, triethylamine, and isopropyl alcohol were 12,700, 16,600, and 0.79 million yuan/ton, respectively, up 15.8%, 14.5%, and 15.1% from 2023Q2, respectively. Downstream market demand is improving month-on-month.
Actively lay out new products and projects, and there is plenty of room for growth in lithium extraction. As of the end of September 2023, the company's construction project was 1.07 billion yuan, and the Ningxia Xinhua Company's 74,650 tons/year synthetic fragrance project was progressing rapidly. The first phase of the project had a production capacity of 26,650 tons, of which 10,000 tons were raw materials for personal use, and the actual fragrance production capacity was 16,650 tons; the second phase is expected to be completed by the end of 2023. Currently, some products have been tested. In 2023, the company made major breakthroughs in lithium resource extraction and recycling. In the field of lithium extraction in salt lakes, the company and Salt Lake Co., Ltd. and Lanke Lithium have signed an industrialization test project for efficient separation (extraction method) of lithium precipitated mother liquor. The project was successfully put into operation in early July. In the field of lithium battery recycling, Jiangsu Xinyao, a holding subsidiary, plans to invest 600 million yuan to implement waste electrodes and battery resource recycling projects, the first phase of the 10,000 ton waste battery LFP electrode sheet, and the second phase project is 40,000 tons of waste battery LFP black powder; the company signed a product sales contract with Grimmie, and the extractant was successfully used in Grimmie's battery recycling production line.
Maintain an “overweight” investment rating. Due to the drop in the prices of some products in the fourth quarter, we adjusted our profit forecast. We expect the company's net profit to be 280 million yuan, 352 million yuan, and 449 million yuan respectively in 2023-2025, and EPS of 1.51, 1.90, and 2.42 yuan respectively. The current stock price corresponds to PE 20, 16, and 12 times, respectively, maintaining the “increase” rating.
Risk warning: product prices are falling, raw material prices are rising, and the commissioning of new projects falls short of expectations.