Description of the event
The company released its three-quarter report for 2023. In the first three quarters, it achieved revenue of 1.32 billion yuan (-0.6% year-on-year), attributable net profit of 3.1 billion yuan (-2.0% year-on-year), and attributable non-net profit of 290 million yuan (-3.2% year-on-year). Among them, Q3 achieved revenue of 470 million yuan in a single quarter (+6.5%, +8.7% month-on-month), attributable net profit of 110 million yuan (+2.7% yoy, +5.2%), attributable non-net profit of 110 million yuan (+8.9% yoy, +7.7%), and Q3 performance increased month-on-month.
Incident comments
Demand is improving, and the company's Q3 sales volume reached a record high. The company released Q3 operating data. According to calculations, the company's production of silicon dioxide products in a single quarter reached 810,000 tons (+30.0%, +10.8%); sales volume reached 810,000 tons (+23.6% yoy, +10.2% yoy); sales volume reached 4.7 billion yuan (+10.7% yoy, 8.2% yoy); and the price of a single ton was 5,779.2 yuan (-10.5% yoy, -1.8% yoy). In terms of raw material prices, Q3's soda ash procurement price fell 17.39% month-on-month, down 16.19% year on year; quartz sand procurement price fell 5.24% month-on-month, down 13.46% year on year; and sulfur procurement price fell 17.97% month-on-month, down 67.14% year on year. From the above data, combined with the fundamental situation, it can be seen that: 1) Since 2023, the company's downstream tire industry market has gradually recovered, domestic and foreign demand has continued to increase, and the company's production and sales volume in a single quarter has reached a record high; 2) the unit price of the company's products has declined due to falling raw material prices and the adoption of a market-based price model by some customers; 3) from the end of 2022 to August 2023, the company's two sodium silicate raw material lines have successively entered the overhaul stage. Production of raw material production costs has been reduced and raw material production costs have remained high, which has an adverse impact on the production cost of the product silicon dioxide. As the company's production capacity continues to be released and downstream demand improves, revenue and performance are expected to continue to increase.
The company's production capacity is expanding in an orderly manner. In 2020, the first phase of the company's Thailand project was officially put into operation, and the technical improvement production capacity of the Sanming plant in Fujian was put into operation one after another. As of 2023H1, the company had a silica production capacity of 330,000 tons/year. The company's second phase of 25,000 tons/year high dispersion silicon dioxide in Thailand has completed the preliminary local approval procedures, and construction will commence after further construction permits and other formalities; the 75,000 tons/year high dispersion silicon dioxide project production lines for the fundraising project are expected to be completed in trial production one after another in 2024, and the entire project is expected to be completed by the end of 2024. In the future, with the gradual release of production capacity, the company's market competitiveness will be enhanced.
The increase in the penetration rate of new energy vehicles continues to drive demand for white carbon black. According to data from the China Automobile Association, in January-September 2023, China's automobile sales volume was 2.169 million units, an increase of 8.2% over the previous year. Among them, from January to September 2023, production and sales of new energy vehicles reached 6.09 million units and 6.278 million units respectively, up 26.7% and 37.5% from the previous year, respectively, and the market share reached 29.8%. Among them, retail sales of new energy passenger vehicles in January-September were 5.188 million units, up 33.8% year on year. The rolling resistance of tires is an important contributor to the fuel consumption of fuel vehicles or the range of electric vehicles, and is also directly related to carbon dioxide emissions. Adding white carbon black to the tire surface can improve tire performance and reduce tire rolling resistance. With the upgrading of global tire greening and the continuous introduction of global green tire policies, demand in the silica black market is expected to rise rapidly.
Maintain a “buy” rating. The company is the largest supplier of precipitated silica in Asia and the third largest in the world. The company's industrial chain extends upstream and downstream, and has now built a complete industrial chain from the raw materials sulfuric acid and sodium silicate to the final product, silica. As the global tire greening rate continues to grow and the company's own production capacity is released, performance is expected to develop rapidly. The company's net profit for 2023-2025 is estimated to be $400 million, $5.0 billion and $60 billion respectively.
Risk warning
1. The investment in new production capacity fell short of expectations;
2. Downstream demand is weak;
3. Fluctuations in raw material prices.