Description of the event

The company released its three-quarter report for 2023. Q1-Q3 achieved revenue of 2,382 billion yuan, an increase of 134.62%; attributable net profit of 157 million yuan, an increase of 130.52%. Looking at a single quarter, Q3 achieved revenue of 1,036 million yuan, an increase of 145.29%; attributable net profit of 69 million yuan, an increase of 109.42%.

Incident comments

Revenue performance continued to grow at a high level, and remained prosperous throughout the year. 2023Q1-Q3 revenue increased by 134.62%, mainly due to good project execution and settlement during the reporting period, and a significant increase in operating income; the same increase in performance of 130.52% was slower than revenue, mainly due to:

1) Gross margin decreased by 4.24pct to 15.36%; 2) Other income increased by 1,427,700 yuan to **** million yuan, and performance was weaker than revenue; 3) net investment income also decreased 4,066 million yuan to -5,078 million yuan; 4) credit impairment losses increased by 108.305 million yuan to -1,5038 million yuan; 5) net exchange income remained the same year on year.

The increase in revenue drove a slight decline in gross margin, and the expense ratio continued to improve. The gross margin of 2023Q1-Q3 decreased by 4.24pct to 15.36%, and the period expense ratio decreased by 4.75pct to 6.1%, of which sales, management, R&D, and financial expenses were reduced by 0.54pct, 3.37pct, 0.6pct, 0.24pct to 0.63%, 4.58%, 1.12%, -0.23%; other income increased by 1,427,700 yuan to **** million yuan; net investment income decreased by 4,067,600 yuan to -507.8 million yuan; asset impairment losses also increased 2,3877 million yuan to 2,3834 million yuan; credit impairment losses increased by 108.305 million yuan to -1,5038 million yuan; asset disposal income increased by 449,500 yuan to 40,000; net exchange income remained the same year over year; income tax rate decreased 2.6 pct to 23.43%; imputed net interest rate also decreased by 0.12 pct to 6.58%; net interest rate decreased by 0.12 pct to 6.58%; net interest rate also decreased by 0.15 pct to 6.35%.

Net operating cash inflows declined year-on-year, reflecting the expansion of the company's revenue scale, and the overall cash flow statement remained healthy.

The net operating cash inflow of Q1-Q3 was $230 million, a year-on-year decrease of $94 million. The ratio of receipt and payment decreased by -82.46pct and -44.63pct to 94.43% and 74.47%, respectively. As of 2023Q3, the company held 289 million yuan of notes and accounts receivable, and 455 million yuan of inventory and contract assets, with year-on-year changes of 85.86% and 3.65%, respectively. Payables, advance receipts and contract liabilities changed by 85.87% and -31.58% year-on-year respectively to $602 million and $297 million.

There are plenty of on-hand orders, the transfer of chemical production capacity drives future growth opportunities, and employee shareholding strengthens the certainty of growth. 1) In January and July 2022, the company successively won major orders of 1.28 billion dollars for INVISTA and 15-20 billion for BASF, laying the foundation for high performance growth in 2023. Considering that by 2030, BASF will invest 10 billion euros to build the Zhanjiang integrated base, the company's orders can be expected to continue to grow. As of 23Q3, the company has plenty of orders, and it is expected that most of the projects will be completed next year, highlighting the certainty of next year's performance growth; 2) According to the European Chemical Industry Committee's forecast, by 2030, China's chemicals will account for 48.6% of global sales, and European chemicals will decline to 10.5%. Compared with 2020, the change is about 4%, -3.9%, gas cooperation between Russia and Europe has stagnated, and Palestine and Israel Catalyzed by factors such as the conflict and the Russia-Ukraine conflict, leading overseas chemical companies have begun to gradually transfer relevant production capacity to put into operation in China, boosting capital expenditure in China's chemical market. The company is expected to continue to benefit in the future. 3) On September 11, '23, the company announced the employee stock ownership plan, granted a price of 4.76 yuan/share, and granted no more than 100 core personnel. The target for unlocking the performance assessment is that 2023/2024 net profit will increase by no less than 20%/44% compared to 2022. It is estimated that in 2023/2024/2025, the company will achieve imputed net profit of 21/29/3.4 billion yuan, corresponding to the current stock price PE of 19.5/13.8/11.8 times, respectively, and maintain the “buy” rating.

Risk warning

1. The investment of foreign-funded enterprises falls short of expectations;

2. Prices of raw materials fluctuate greatly.