Description of the event

The company announced its report for the third quarter of 2023. The cumulative operating income for the first three quarters of 2023 was 4.936 billion yuan, a year-on-year decrease of 23.08%; net profit of 404 million yuan, a year-on-year decrease of 48.01%; and net cash flow from operating activities was 357 million yuan, a year-on-year decrease of 68.70%. Among them, operating income for the third quarter of 2023 was 1,729 million yuan, a year-on-year decrease of 30.26%; net profit of the mother was 78 million yuan, a decrease of 75.59% over the previous year, and net profit after deducting net profit of 56 million yuan, an increase of 40.2% over the previous year.

Incident comments

The price of 23Q3EVA has increased slightly, and the spread has narrowed slightly. Demand for EVA downstream photovoltaics and other industries improved in 23Q3. The average price of photovoltaic-grade EVA remained basically the same month-on-month. Prices of raw materials methanol and vinyl acetate rose 3.6% and 2.6% month-on-month respectively, and the price difference of photovoltaic-grade EVA was 8,220 yuan/ton, slightly declining month-on-month. The company's 23Q3 product prices have gradually stabilized, sales of major products such as premium EVA materials, PP special materials, and EOD specialty products have increased, gross margin has further increased, profitability has been restored, and business performance has improved month-on-month. The company deducted net profit of 56 million yuan after deduction, an increase of 40.2% over the previous month. The company will build or put into production a number of installations in 23Q4. After the 90,000 tons/year VA unit is put into operation, the cost of EVA products will be significantly reduced. After the 20,000 tons/year UHMWPE, 100,000 tons/year lactic acid, 40,000 tons/year PLA, 10,000 tons/year of high-purity specialty gas and other devices are put into production, the company's high-margin product categories, expand revenue scale, and enhance overall profitability.

Demand grew steadily in 2023-2024, while supply growth was limited. Looking at the demand dimension, the CPIA recently predicts that the new installed capacity of global photovoltaics will reach 305-350 GW in 2023, and the new installed capacity of PV in China will be 120-140 GW. As one of the main materials for photovoltaic films, the demand for EVA will increase rapidly as the number of new PV installations continues to grow. Demand for EVA in applications such as photovoltaic films, wires and cables, foams, and hot melt adhesives will continue to grow steadily. The overall domestic demand for EVA is expected to exceed 3.5 million tons in 2025. It is expected that supply and demand will maintain a tight balance, and there is still plenty of room for increased demand and import substitution. On the supply side, the next round of expansion will begin one after another by the end of 2024. Therefore, in a context where demand remains high, photovoltaic-grade EVA is expected to continue to maintain a high boom cycle.

The company has broad room for future growth. 1. New energy sector: 1) The company has a production capacity of 200,000 tons/year of EVA under construction and is expected to be put into operation in 2025; 2) the 90,000 tons/year VA unit under construction is scheduled to be completed and put into operation by the end of 2023. After production, it can meet the raw material needs of 350,000 tons/year EVA equipment; 3) Actively lay out the POE business and plan to build 300,000 tons/year POE projects, including the first phase of 100,000 tons/year, and the second phase of 200,000 tons/year to produce a series of high-end materials such as POE photovoltaic film materials and tougheners. The project is expected to be It will be completed and put into operation in 2025; 4) The 20,000 tons/year UHMWPE unit under construction by the company is scheduled to be completed and put into operation by the end of 2023, and the 3,000 tons/year VC unit for the lithium battery additive project is scheduled to be completed and put into operation by the end of 2023. 2. The field of biodegradable materials: 1) The 130,000 tons/year PLA project being built by the company uses the self-developed “starch - high gloss pure lactic acid - high gloss pure propylene glycol ester - polylactic acid” industry chain technology. Among them, the first phase of the 100,000 tons/year lactic acid device and 40,000 tons/year PLA plant are scheduled to be completed and put into operation by the end of 2023; 2) The 50,000 tons/year PPC unit under construction is scheduled to be completed and put into operation in 2025; 3. Special fine materials field: 10,000 tons/year special gas project under construction It was completed and put into operation by the end of 2023.

Without considering future share capital expansion, the company's net profit for 2023-2025 is estimated to be 530 million yuan, 900 million yuan, and 1.59 billion yuan. The PE corresponding to the closing price on November 1, 2023 is 48.2 times, 28.1 times, and 16.0 times, maintaining the “buy” rating.

Risk warning

1. EVA prosperity fell short of expectations; 2. Project construction progress fell short of expectations.