Event: The company announced its report for the third quarter of 2023. In the first three quarters, the company achieved operating income of 2.152 billion yuan, an increase of 5.42% over the previous year. Net profit attributable to shareholders of the parent company was 451 million yuan, an increase of 24.01% over the previous year, and net profit of the mother net profit after deduction of 427 million yuan, an increase of 31.70% over the previous year. In the third quarter, the company achieved operating income of 814 million yuan, a year-on-year decrease of 20.25%, an increase of 14.03% over the previous year; net profit after deduction was 195 million yuan, a year-on-year decrease of 8.83%, an increase of 35.51% over the previous year.
Key points of investment:
Profitability increased month-on-month in the third quarter. In the first three quarters of 2023, the company's gross margin/net profit margin was 34.46%/21.02% respectively, with a year-on-year ratio of +6.39pct/+3.22pct. Looking at the third quarter alone, the company's gross margin/net profit margin was 37.47%/24.75% respectively, +7.04pct/+3.46pct year-on-year and +3.53pct/+3.29pct month-on-month. We believe that the increase in sales share of high-margin lubricant additive compounds and proper product cost control are the main reasons for the increase in the company's profitability.
The country's export volume and price of lubricant additives have risen sharply, with Henan ranking first in terms of export volume. According to data from the General Administration of Customs, the country exported 161,700 tons of lubricant additives in the first three quarters of 2023, an increase of 18.76% over the previous year; the export unit price was 23068.51 yuan/ton, an increase of 3.79% over the previous year.
Among them, Henan exported 84,000 tons, an increase of 17.58% over the previous year; the export unit price was 22648.10 yuan/ton, an increase of 4.86% over the previous year, and the export volume accounted for 52.04%, ranking first in the country.
Looking at the third quarter alone, the country's exports of lubricant additives were 60,500 tons, down 5.05% year on year, up 23.19% month on month; export unit price was 23018.05 yuan/ton, down 5.11% year on year, up 1.42% month on month; Henan lubricant additive exports were 31,300 tons, down 4.76% year on year, up 19.79% month on month; export unit price was 22446.28 yuan/ton, down 5.53% year on year, up 0.58% month on month. With the improvement of product technology and the restructuring of the lubricant additive supply chain, the competitiveness of Chinese lubricant additives in the global market is gradually increasing, and the market share is expected to continue to increase.
The company's production capacity is rapidly expanding and actively seizing global market share. The company currently has a production capacity of more than 200,000 tons/year for a single agent of lubricant additives and a production capacity of 350,000 tons/year under construction. Among them, the 150,000 tons/year lubricant additive project, the first phase with a production capacity of 60,000 tons/year was put into operation in the third quarter of 2022, and the second phase of 90,000 tons/year will be put into operation by the end of 2023. At the same time, the company's 460,000 tons/year lubricant additive project is also under active construction. In the future, the production capacity of the company's Xinxiang base will exceed 700,000 tons/year. As the company's fund-raising projects actively advance and production capacity continues to increase, the company's global lubricant additives market share will further increase, and the company's performance is expected to experience significant growth.
Profit forecast and investment advice: The company is one of the leading enterprises in the field of lubricant additives in China. The company seizes the industry's opportunities in the international supply chain system facing reconstruction and accelerated domestic import substitution, and actively increases market share. There is broad room for future growth, so we maintain an “increase in holdings rating”. Since downstream market demand for the third quarter fell short of expectations, we lowered our profit forecast. The company's 2023-2025 operating income is estimated to be 31.51/39.09/4.856 billion yuan, net profit is 6.68/7.91/954 billion yuan, corresponding EPS is 2.32/2.74/3.31 yuan, and corresponding PE is 19.54/16.50/13.69 times.
Risk warning: Downstream demand recovery falls short of expectations, R&D progress falls short of expectations, and capacity expansion falls short of expectations.